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Bond Funds

A bond fund is a variety of mutual fund that concentrates its investment strategies on bond issues. These funds typically carry more risk than money market funds, for instance, and are often turned to when the investor has a need to generate income perhaps in retirement or a circumstance of disability. Bond funds are also useful in achieving portfolio diversification.

The major types of bond funds include municipal bond funds that are composed of tax-exempt bonds issued by local and state governments. Corporate bond funds make use of the debt obligations of corporations where as mortgage-backed securities funds represent mortgages on residential dwellings. The fourth and final type of bond funds are those issued by the U.S. government, usually by the treasury department.

Bond funds may also be classified according to date of maturity and so will be listed as short-term, intermediate-term, and long-term. (The maturity date represents the period of time that passes before the principal and interest on the bond is collected by the investor.)

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