Bond Fund

A bond fund is an investment fund which invests primarily in bonds. This type of fund is sometimes referred to as a debt fund because the securities traded on the fund represent debt obligations (bonds).

Bond funds do not carry as much risk as other types of mutual funds because barring the risk of bond issuers defaulting on their loans, returns are guaranteed in the form of steady, regular coupon payments.

Bond funds typically pay out periodic dividends to their shareholders. Because bond funds have little potential for rapid growth, the dividends paid out represent the bulk of capital gains earned by their shareholders.

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