A bond fund is an investment fund that invests exclusively or predominantly in bonds - also known as bonds , which explains the term "bond fund". These funds generate their growth in value through interest payments and trading in the securities they hold. Individual funds also carry out (temporarily) hedging transactions on the futures market .
Bond funds benefit disproportionately in times of falling interest rates, since bond prices rise sharply during these times. On the other hand, bond funds find it difficult to generate a positive return in phases of rising interest rates ( see also bond # interest rate risk ).
Its group of investors are savers with the investment objective of steady income. Compared to direct investments, bond funds have a significantly reduced price risk . The investment success of a bond fund is favored by the constant fixed income of the papers contained in the bond fund and by the "correct" term structure.
The opportunities and risks of a bond fund depend on the investment region, investment horizon (remaining term) and the creditworthiness of the issuer. Government bonds and corporate bonds with first-class credit ratings are considered relatively safe . The creditworthiness of individual companies and bonds is usually assessed by independent rating agencies . A default in interest payments and repayment is considered unlikely for bonds from good issuers.
The high-yield bonds or junk bonds, i.e. bonds from poorly rated issuers, usually offer higher interest rates to compensate for the higher risk. Bond funds that speculate exclusively in this segment have designations such as High Yield in the fund name. Such papers are also interesting as an admixture for the other funds.
By bundling several securities and actively managing the funds, a bond fund for private investors may offer a better risk / reward ratio than buying individual bonds.
If a bond fund invests in foreign currencies, there is an additional currency risk for the holder of the fund .
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