Bond Funds

 Bond funds invest primarily in fixed-income securities issued by companies and governments. Most bond funds invest in debt instruments of companies and governments.

In general, a bond fund's investment objective takes into account both maturity, or the length of time until the principal is due on its bonds, and credit quality. Some funds invest in long-term bonds that mature in 10 to 30 years, others invest in intermediate-term bonds that mature in 4 to 10 years, and some invest only in short-term bonds that mature in 1 to 4 years. Most funds invest in government or corporate bonds that are of high credit quality, or "investment-grade." Those that focus on more risky lower-grade bonds are called "high-yield" or "junk" bond funds.

The total return for a bond fund consists of both interest income and price appreciation (or depreciation). Interest income, often expressed in percentage terms as "yield," is the interest paid on the bonds held by the fund. The actual value of the bonds can rise or fall, depending on market conditions. The prices of bonds tend not to fluctuate as greatly as those of stocks. 

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