Bond Fund BasicsBond Funds
A bond fund is a mutual or closed end fund which specializes in fixed income securities. These funds construct a portfolio from selected bonds and sell you a percentage of ownership. The selections are based on specific bond classifications, maturity, credit risk, or other specific characteristics. The investments specifications purchased with your money will be specified in fund’s prospectus.
Bond funds comprise several investments rolled into a bundle for easy access. Instead of manually selecting a portfolio of bonds by hand, you can purchase into bond funds which will trade them for you and transfer the profits to you. The bond fund you enter should target the bond classification you need in your portfolio. If you desired corporate high yield bonds you would purchase a corporate high yield bond fund. You’d receive a wide portfolio of potentially hundreds of bonds displaying itself as a single investment. Your benefit is instant diversification. Instead of buying five bonds for $5,000 and losing heavily if two defaulted, you’d purchase 300 high yield bonds for the same price held within the bond fund. If two defaulted, it would only be a minor blip on your financial portfolio, if anything at all.
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