What Is a Bond Fund?

Video Transcript

"Okay. So you're wondering what a bond fund is. Bond funds are simply mutual funds that hold lots of bonds -- bond issues. They're fixed income instruments. The difference is that when you buy a bond individually, you buy it for a certain amount. Presumably, you buy the bond when it's issued. You buy it for its par value. The bond pays you the stated yield, and at the end, you get your money back. With a bond fund, they're a little different. You've got a professional manager who knows more than most of us, and is going to be investing in lots of different bonds and debt instruments. And those will make up this gigantic portfolio that you're a part of in your...in the fund. It saves you management time, it saves you worrying about when to buy and sell. They will be taking care of that information for you. There's two types of bond funds. There's regular bond mutual fund, which will have a longer ticker symbol, and those are traded, you know, once a day if you want to trade those. The...there's also exchange traded funds, and those are a three-letter ticker symbol. And those are closed-end mutual funds. They're a little different. They can be traded like stocks. You can trade those during the day. So if you see if you were to want to sell your bond fund, your regular mutual fund, at, say, 10 o'clock in the morning, well, that trade wouldn't be executed until the end of the day. If you wanted to sell your exchange traded bond fund, you could sell that at any point during the day because it's traded much like a stock. But both of them are very similar in that they are a larger portfolio of bonds and fixed income instruments."