Bond fund

What is a bond fund

A bond fund is a mutual fund or ETF that invests mainly in a portfolio of bonds. Instead of buying individual bonds, the investor buys a share in the fund, which gives them diversification and professional management of their investment.

These funds can invest in government, corporate or international bonds with different maturities and levels of risk.

Types of bond funds

1. Government bond funds – invest in government issuance with low credit risk.
2. Corporate bond funds – focus on corporate bonds, often with higher yield and risk.
3. High-yield funds – invest in lower-rated bonds with higher coupons.
4. Short, medium or long-duration funds – classified by the time to maturity of the bonds held.
5. International and global funds – include bonds issued by foreign entities.

Benefits of bond funds

• Immediate diversification across dozens to hundreds of bonds.
• Professional management and market analysis.
• Ability to invest with less capital than when buying individual bonds directly.
• Regular passive income from coupons.

Risks of bond funds

• Interest rate risk – rising interest rates can reduce fund value.
• Credit risk – the risk that an issuer in the fund's portfolio defaults.
• Currency risk – for funds investing in foreign bonds.

Bond funds vs. individual bonds

In contrast to holding bonds directly, the investor has no guarantee that the face value will be returned at a specific maturity – the value of the fund changes with market conditions. On the other hand, they get better diversification and access to a wider range of issues.

Bond funds on the Stonkee platform

On Stonkee you will find an overview of bond funds including their yield to maturity, rating and historical performance. The AI can compare funds with each other, analyse their riskiness and recommend an optimal weight in the portfolio.

Summary

A bond fund is a suitable instrument for investors who want stable income and lower volatility than with stock investments, but at the same time prefer professional management and broad diversification.