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Bond Fund A fund invested primarily in bonds and other debt instruments. The exact type of debt the fund invests in will depend on the focus of the fund but may include an investment in government, corporate, municipal and convertible bonds, along with other debt securities like mortgage-backed securities. A short-term bond fund, for example, will invest mostly in debt instruments with short-term maturities, such as Treasury bills, while an international bond fund will invest in bonds issued in foreign countries. In general, these type of funds, along with bonds themselves, are considered to be lower risk because they produce a predictable cash flow. However, bond funds are not risk free, although this is a common misconception. The biggest risks in any bond fund include credit risk, reinvestment risk and interest rate risk, which could all lead to the fund losing money or underperforming the market.
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