A bond fund is a mutual fund that has invested in a number of different bonds. It can be less risky than trading bonds on your own for two reasons:
- You get the services of a professional fund manager
- The manager chooses a wide range of bonds, spreading out the risk. Choices include bonds that:
- Are issued by different governments and companies in different industries
- Mature on different dates
- Pay different rates of return
- Carry different amounts of risk.
Some bond funds focus on buying bonds from a certain country, like Canada or the United States. Some focus on government bonds and some on bonds issued by companies or municipalities. It's important to know which investments the fund chooses so you can understand the risk of losing your money.
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Content in this section is provided in partnership with the Investor Education Fund, a non-profit organization promoting financial literacy to Canadians. To find out more go to GetSmarterAboutMoney.ca.