What is a Bond Fund?

A mutual fund is an investment vehicle that pools money from investors and invests the accumulated corpus in a wide range of capital market securities. Mutual fund schemes may choose to allocate their investments in different asset classes like debt, equity, gold, etc. Basically, the investment objective of the scheme drives the nature of its portfolio.

Bond funds are mutual funds that concentrate their portfolio on debt instruments. Bond funds are also called debt mutual funds. Schemes that aim to generate regular income, invest in debt securities such as treasury bills, government securities, bonds, fixed deposits and debentures since debt is an income-oriented asset class.{2D743194-97C2-43F9-BC28-AEC370801ECD}

Bond funds may be categorised based on the issuer of the debt instruments forming part of their portfolio. For instance, gilt funds invest mainly in government securities; corporate bond funds invest in bonds issued by companies and PSUs. Additionally, they could also be classified based on the tenure of the debt securities like liquid funds, medium duration funds, short-term plans, ultra-short-term plans, etc.Another basis of classification of bond funds is the investment strategy of the scheme. For example, high-yield bond schemes invest in debt securities that lower credit ratings. Such schemes operate on the premise that the attractive returns offered by the junk bonds make up for the losses arising out of a few companies defaulting.

• Investors looking to create a steady source of income
• Investors exposed to a largely equity-oriented portfolio, who wish to diversify the risks associated with the high allocation of equity.
• Investors with comparatively lower risk appetite
• People looking to invest for indispensable goals likes saving for the down-payment of a house, children’s education, post-retirement fund, etc.,

In conclusion Although bond funds pose as a favourable investment opportunity, one must examine crucial details like the fund manager’s track record, investment objectives, one’s own investment goals, risk profile, portfolio, etc. so as to make an informed decision.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.