- Mutual funds are investment products marketed by mutual fund companies. Typically, a mutual fund company offers more than one mutual fund to the public. The collection of funds the company offers is known as the fund family.
- Mutual funds may invest in many different types of securities depending on the fund's charterm which dictates what types of investments are allowed and disallowed. Certain mutual funds are restricted to only investing in bonds. These mutual funds are generally known as bond funds. Bond funds represent one of the many types of mutual funds available.
- One benefit provided by mutual funds is diversification. By pooling money with other investors, a single person can own a portfolio that is comprised of hundreds of holdings. However, many investors need investments in specific areas or categories. For these investors, there are mutual funds that are restricted to investments within certain segments such as bonds. In this way, investors can invest in a wide variety of individual securities while still ensuring that the investments are only made in bonds and not stocks or other securities.
- Although bonds are generally regarded as safer than stocks, bond funds can go down in value. It is more accurate to say that bond funds are less volatile than stock-based mutual funds, although neither are immune from price declines. Bond funds can and do lose money over both the short term and the long term.
- Owning individual bonds provides greater control for the investor. By owning individual bonds, the investor can choose when to buy or sell. In contrast, a bond fund--or any type of mutual fund--allows the investor only the opportunity to buy or sell the whole fund. This strategy is important in bond investing because while the market value of a bond may move up and down over its lifetime, the investor is always ensured that full face value of the bond will be repaid unless there is a default. While a fund may sell a bond when its market value is lower than the face value, thus creating a loss to achieve some overall goal, an individual investor could retain the bond until its maturity regardless of how much the value of the bond declines if she is willing to continue accepting the risk.
