Those that are interested in investing in some sort of a bond, which is generally considered one of the safest means of investment, should consider investing in a bond fund. While they operate around the concept of a general bond, they operate much more like a mutual fund.
A bond is essentially a debt that a entity (company, organization, government)is required to pay back over a period of time at a specified rate of interest. These bonds allow an entity to borrow more efficiently than they could from a bank, while allowing investors to get a piece of the action, acting as a piece of the collective investors. These bonds are used for a variety of purposes, but ultimately are used for upgrades or continuation.
A bond fund is basically a fund that is composed of bonds and other debt securities. These bond funds generally pay out monthly dividends to the investor which consist of capital appreciation and securities that the fund maintains.
The major difference between investing in a single bond is that bond funds generally pay out more regularly in regards to dividends, plus it allows for a much greater deal of diversification in case a bond goes bad, although that rarely does happen, especially when the bonds are managed by professionals who watch for patterns.
The bond fund is normally more likely to have higher payouts than a money market account or traditional certificates of deposit, while having about the same level of risk. This obviously makes them substantially more appealing to the average investor.
Some other advantages of the bond fund over a standard bond are that you can sell a bond fund at any time, unlike a bond which normally requires a certain time investment. This means that you don’t have to pay any attention to the actual bond maturity dates. This gives you a lot more liquidity with your money. Also, you have the option of reinvestment of the dividends back into the bond at any time. This allows you to make even more money off of the bond fund as your share increases in it. Plus remember that bond funds are managed, unlike a standard bond. This means that you have a greater chance of making money as the managers make better purchasing decisions.