A bond fund or bond mutual fund is an investor managed investment fund that invests in various bonds, or other fixed income securities. In contrast with a stock fund, bond funds typically pay no dividends – they are simply paid to investors periodically with the profits from these investments. However, the dividends can be very substantial.
Bond funds are usually classified as liquid or fixed income funds depending on how they are invested. A bond is basically a loan where the issuer promises to pay a fixed interest on a future date. Bond prices may also fluctuate depending on the financial health of the issuer. For example, if an issuer is about to go bankrupt, the value of the bond may drop. However, if the company is stable, the value of the bond will likely increase due to a boost in company stock or revenues.
Fixed income investments also include mortgage backed securities (MBS) and commercial paper. MBS are securities guaranteed by the full faith and credit of the United States government. Commercial paper include notes secured by property that is not owned directly by the issuing company. These notes are typically held by large financial institutions such as banks or hedge funds.
Because most bonds are traded on U.S. exchanges, there are numerous exchanges where you can buy or sell bonds. However, there are only a few general purpose markets where all bonds can be traded. Most mutual funds and bond funds are traded on NASDAQ, the New York Stock Exchange (NYSE), the London Debt Market (LDM), and the Swiss Exchange (SwissDiffe).
There are also specialized hybrid markets where bond funds can be traded. These include equity funds and real estate funds. The cost of trading in a hybrid market is typically less than the cost of trading on the over-the-counter market. This is because the fees for trading in these hybrid markets are usually lower.
Many professional investors advise against investing in bonds yourself. Before purchasing any individual bond, it is important to research the individual bonds’ past performance. In addition, if you purchase a portfolio of bonds that have high returns and substantial market activity, you can potentially make a profit on your investment in a short period of time.
The expense of purchasing individual bonds can add up quickly. In addition, if you purchase bond funds instead of purchasing individual bonds, you will pay fees for the privilege. However, once you purchase a bond fund, you will never have to pay bond fees again. This is how bond funds are such a great way to diversify an investment portfolio. You can buy them at a low price and invest in any amount or types of bonds that you choose.
When searching for what is a bond fund, it is important to remember that there are two different types of bond funds – federal and state. Federal funds are backed by the federal government. State funds are backed by state government agencies, including the Department of Education and various state treasurers. Regardless of which type of bond you choose to invest in, remember that you are paying a premium for the promise to pay the principal and interest after a specific period of time.
There are two types of people who purchase what is a bond fund. One group of individuals and families purchase federal bonds because they know that federal government debt will be guaranteed. For these people, the risk is minimal because the federal government backs the bonds with an extensive history of paying their bills. For other investors, the risk associated with state and local bonds is present, but they typically purchase those backed by state treasuries due to the perceived lower risk associated with investing in state issued bonds.
What is a bond fund can vary depending on your investment goals. If you are looking to diversify your portfolio, look into what is a bond fund for you. You may choose a type of bond that you already own in order to diversify. For example, if you own some municipal bonds, look into what is a bond fund for your portfolio. Federal and state treasuries are both safe investments, so don’t eliminate them from your list just yet.
On the other hand, if you are looking to increase your investment income, look into what is a bond fund for you. This type of fund will pay you a dividend each year. The amount you receive will be dependent on the type of fund you own, the composition of your portfolio and how well the market is doing. Most fund income is earned through performance fees, which are non-recourse payments. When the markets are strong, this type of fund can enjoy a high return on investment. On the other hand, when the markets are weak, the risk of loss becomes higher and so the amount you will be able to earn through what is a bond fund will decrease.