A bond fund is a mutual fund made up of monies invested in an assortment of bonds or other debt securities. Bonds are interest-bearing document or certificate that identifies a debt to a public or private corporation. When you purchase a bond you are loaning money to the bond's issuer, usually a company, for a specified length of time. The due date for payback is the bond's "maturity date." Bonds are generally considered to be more conservative (i.e. safer) than stocks, but the best portfolios contain a combination of conservative and aggressive investments appropriate to your goals.

Many companies and public organizations use bonds, from your municipality to large corporations to governments. For example, when you buy a US Treasury bond, you are lending money to the US government for the use of operating costs or to pay off debt. This type of bond is fairly safe, but it has a relatively low interest rate. You can also purchase corporate bonds, through which you lend money to a corporation. You'll generally earn more of a return on these, but you take a greater risk in that the company may lose money on its ventures, causing it to default on its loans.

A bond fund is a great way to invest in a wide variety of companies — as with all investing, diversification is generally key to reduced risk and greater returns. Some bonds, and their funds, have special tax advantages or are tax-exempt, such as Municipal Bond Funds. A bond fund can also be a source of income — great for investors nearing or in retirement.

While individuals can purchase bonds on their own, a bond fund is managed by professionals skilled in balancing a selection to provide the greatest stable return against the fluctuations of the market. There are many services available to help you research the multitude of available bond funds and their past performance.

When you purchase shares of a bond fund, there's no guaranteed return of the principal like there is with individual bonds that are held to maturity. Each bond in the fund will have its own maturity date, of course, but the bond fund as a whole usually does not. As a result, you should pay attention to your investment in a bond fund in order to determine the best time to sell your shares. You can also choose a bond fund that is designed with specific investment horizons in mind, such as Short-term Bond Funds that include holdings maturing in as little as two years.