What Are Bonds Mutual Funds?

What are Bonds Mutual Funds? Bond mutual funds are mutual funds which invest in and consist only of bonds. Known as bond funds, mutual bond funds buy debt securities issued by a varying range of entities from the US Treasury, local governments, and corporate bond issuers. The composition of a bond fund can contain any of these three primary bond sources, or can specialize in simply one. Bond funds are similar to money market mutual funds however money market bond funds are more specific in the debt securities which they can contain. This composition is governed by the Securities and Exchange Commission (SEC) and applies only to money market mutual funds. Bond funds can invest in a wide range of debt securities with whatever makeup they choose for their given portfolios. In order however to be considered true bond funds, they can only have debt securities as their holdings.

Bond Fund Investing

Bond fund investing offers many benefits to the investor over regular mutual fund investing. A normal mutual fund may contain debt securities such as bonds in its investment portfolio; however they also invest in a myriad of other financial instruments. True bond funds contain only bonds and offer these advantages in bond fund investing:

Stability: bonds are most always considered safer investments than traditional stocks because they guarantee not only dividends in the form of coupon interest payments, but also the principal to be repaid. While a bond is only as good as its issuer, most bond funds carry high credit rated bonds making bond funds very stable and very safe investments.

Dividend Payments: bond fund investing offers the most regular and predictable dividend payment structure in the mutual fund market. Because the fund is invested in debt securities, the interest payments comprise dividend payments made at regular intervals to their investors.

Tax Liability: dependent on the bond type, but in most cases where bond funds consist of government issued bonds, there are typically no federal and/or state taxes on capital gains profited from these investments.

Related posts:

1. What Are Dividend Mutual Funds?
2. What Are Bond Mutual Funds?
3. How To Invest In Income Mutual Funds?
4. How To Buy Mutual Funds?
5. How To Invest In Money Market Mutual Funds?