A bond fund is a collective investment scheme that invests in bonds and other debt securities. Bond funds typically pay periodic dividends that include interest payments on the fund's underlying securities plus periodic realized capital appreciation. Bond funds typically pay higher dividends than commercial deposits (CDs) and money market accounts. Most bond funds pay out dividends more fre quently than individual bonds
Bond Funds can be classified by their primary underlying asset, these include government or treasury bonds, municipal bonds, corporate bonds or mortgage loans. Each class will offer different rates to reflect the security of the issuer- ie a western government would have a safer prospect than a new start up company in say Brazil.
Bond funds may also be classified by factors such as type of yield (high income) or term (short, medium, long) or some other specialty such as zero-coupon bonds, international bonds, multisector bonds or convertible bonds.