Tuesday, December 15, 2009

bond funds

Income funds are named appropriately: their purpose is to provide current income
on a steady basis. When referring to mutual funds, the terms "fixed-income,"
"bond," and "income" are synonymous. These terms denote funds that invest
primarily in government and corporate debt. While fund holdings may appreciate in
value, the primary objective of these funds is to provide a steady cash flow to
investors. As such, the audience for these funds consists of conservative investors
and retirees.
Bond funds are likely to pay higher returns than certificates of deposit and money
market investments, but bond funds aren't without risk. Because there are many
different types of bonds, bond funds can vary dramatically depending on where they
invest. For example, a fund specializing in high-yield junk bonds is much more risky
than a fund that invests in government securities; also, nearly all bond funds are
subject to interest rate risk, which means that if rates go up the value of the fund
goes down.

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