What is a Bond Fund?

A bond fund is a mutual fund which invests in bonds, typically with the objective of providing stable income. These funds may invest in a specific type of bond, such as corporate, government, high-yield, municipal or zero-coupon, or they may invest in all or some bond types. Bond funds, unlike bonds, do not have a maturity date. When you purchase a bond and hold it until maturity, you lock in your return at the time of purchase (unless the bond issuer defaults on its obligations). With a bond fund, the value of your investment is likely to fluctuate, and there is a risk of losing value in a rising interest rate environment when yields rise, but the price of bonds fall. The greater the duration of the bond fund, the greater this interest rate risk.