Bond Fund

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Definition of 'Bond Fund'

A bond fund is a type of mutual fund that invests in bonds. Bonds are loans that are issued by governments or corporations. When you buy a bond, you are lending money to the issuer. In return, the issuer agrees to pay you interest on the loan and to repay the principal (the amount you loaned) at a certain date in the future.

Bond funds can be either fixed-income or floating-income funds. Fixed-income funds invest in bonds that pay a fixed interest rate. Floating-income funds invest in bonds that pay an interest rate that changes over time.

Bond funds can be used to generate income or to build wealth. Income-oriented investors typically choose bond funds with longer maturities, as these funds tend to pay higher interest rates. Wealth-building investors typically choose bond funds with shorter maturities, as these funds are less volatile.

Bond funds are considered to be less risky than stocks, but they also offer lower returns. The risk of a bond fund depends on the credit quality of the bonds it holds. Bonds issued by governments or government-backed agencies are considered to be the safest, while bonds issued by corporations are considered to be riskier.

Bond funds can be a good investment for investors who are looking for a steady stream of income or who want to reduce the risk in their portfolios. However, it is important to understand the risks associated with bond funds before investing.

Here are some additional things to know about bond funds:

* Bond funds are typically managed by professional investment managers.
* Bond funds can be purchased through a brokerage account or directly from the fund company.
* Bond funds have fees, such as management fees and trading fees.
* Bond funds are subject to market risk, which means that their value can go up or down.
* Bond funds are not FDIC-insured.

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