Organization

• A bond fund can be any mutual fund, investment fund or management fund that puts all or most of its investments toward bonds. The specific attributes that bond funds have can vary according to locale and legal identity, but they generally share a few common organizational aspects. The person in charge of the bond fund is usually called the fund manager or investment manager. He works like the CEO of a corporation, making the major decisions about how the bond fund will invest its money and collect on investments. Another important person is the fund administrator, who is similar to the CFO of a corporation. She oversees the payment of the fund's expenses, valuation of the fund's holdings and the pricing of the securities that the fund sells to its investors. The board of directors of a bond fund oversees the work that the manager and administrator do and make sure that all operations are in compliance with the law. Finally, shareholders or unit-holders are people who own shares of the fund.
  
  

Basic Operation

• A bond fund raises its initial investment capital by selling shares to shareholders. After receiving money through these investments, professionals who work for the fund study the bond market to see which bonds offer the safest and most lucrative prospects for investment. The bond fund will then purchase large numbers of various bonds that seem to be promising. As these bonds mature, they pay money into the fund, which uses some of the profits to pay operational costs and divides the rest among shareholders in the form of dividends. Investors can profit from their shares by receiving dividends and by selling their shares when they appreciate in value.
  
  

Benefits

• Bond funds often appeal to investors primarily on the grounds of security. First, bonds are typically viewed as secure investments to begin with, especially government bonds. Second, instead of investing in one or two different bonds, bond funds invest in a broad number of bonds, thus minimizing the risk of investing heavily in bonds that turn out to be a poor investment. Third, bond funds add an additional level of security in that they are managed by investment professionals. Because of this, part-time investors can take heart that someone well-informed is deciding on how their money is being invested.
  
  

Disadvantages

• In investing, safety and possible profits are often two opposites. Thus, while bond funds are generally safe investments, they do not tend to produce very high returns. In addition to this, some critics argue that since bond investment is often very safe to begin with, it is better to simply invest in bonds yourself than to pay someone else to do it by investing in a bond fund. This is especially true for government bonds, which tend to be some of the most stable investments available. Also, while safe bonds give a guaranteed return on your investment, bond fund shares are not bonds, so their value can actually be volatile -- especially if the bond fund invests heavily in "junk bonds," which are high-risk bonds issued by companies with questionable financial stability.