What Are Bond Funds?

Bond funds are mutual funds that invest in bonds and other debt securities.

A debt security is a loan that must be paid back with interest at the end of a specified period.

Although there are debt securities other than bonds, they make up only a small part of debt investments.

When investors send money to a bond mutual fund, the fund's managers use that money to buy bonds and other debt securities. Bond funds invest primarily to provide investment income and preserve principal. They are conservative in nature (except for funds that specialize in high-yield bonds). Many bond fund managers seek to maintain as little fluctuation as possible in the share prices of their funds. As a result, bond funds are popular among investors who are looking for current income, the safety features of bonds, and the diversification of mutual funds.

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