Bond Fund
Quick Definition
A mutual fund or ETF that invests primarily in bonds and other debt securities, providing diversification and professional management for fixed-income investors.
What Is Bond Fund?
A bond fund is a pooled investment vehicle — either a mutual fund or exchange-traded fund (ETF) — that invests primarily in bonds and other fixed-income securities. Bond funds offer investors instant diversification across hundreds or thousands of individual bonds, professional portfolio management, and liquidity that individual bonds often lack. Unlike holding individual bonds to maturity (where you get your principal back), bond funds have no maturity date and their net asset value fluctuates with interest rates. Major categories include government bond funds, corporate bond funds, high-yield bond funds, municipal bond funds, and aggregate bond funds that invest across the full spectrum. Popular examples include the Vanguard Total Bond Market ETF (BND) and iShares Core U.S. Aggregate Bond ETF (AGG). Bond funds typically charge expense ratios ranging from 0.03% for index funds to 0.75%+ for actively managed funds.
Bond Fund Example
- 1The Vanguard Total Bond Market ETF (BND) holds over 10,000 bonds with a 0.03% expense ratio and 4.5% yield
- 2A short-term bond fund with 2-year average duration loses roughly 2% when rates rise 1%, while a long-term fund with 15-year duration loses 15%
Related Terms
Bond
A fixed-income debt security where investors loan money to an issuer in exchange for regular interest payments and return of principal at maturity.
Bond Ladder
An investment strategy that staggers bond maturities across multiple years to reduce interest rate risk and provide regular reinvestment opportunities.
Duration
A measure of a bond's price sensitivity to interest rate changes, expressed in years, indicating how much the price will move for a 1% change in rates.
Corporate Bond
A debt security issued by a corporation to raise capital, paying periodic interest and returning principal at maturity.
Treasury Bond (T-Bond)
A long-term U.S. government debt security with a maturity of 20 or 30 years, paying semiannual coupon interest.
Yield Curve
A graphical representation of interest rates across different maturities for bonds of similar credit quality, typically U.S. Treasuries.
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