A brief introduction to Bond funds:
Bond funds serve as powerful tools of investment. Individuals who do not believe in taking risks can opt for Bond funds.
People opting for security and also well earned returns ought to opt for Bond funds.
Bond funds also enables an individual to earn more than what the individual would have earned from other sources like fixed deposits etc.
Bond funds almost always provide regular income to the investors.
The
NAVs or the
net asset value of the bond funds do not have the tendency to vacillate as compared to the equity funds.
Most bond funds pay income regularly and their NAVs tend to fluctuate less than an
equity fund.
Bond funds can be categorized depending on the various issuers. The bond funds can be named as follows:
- Bond funds issued by the Government. These bond funds are called Government bonds.
The bond funds are issued by the treasury of the Government. The bond funds issued by the Government are regarded as quality bond.
The reason being the Government bond funds are backed by the Government. This ensures guaranteed payment in the event of maturity.
Despite such high degree of security, the bond funds issued by the Government yield the least.
- Bond funds issued by the corporate houses. The bond funds issued by the corporate houses is referred to as Corporate bond funds.
Issued by different corporate companies, the corporate bond funds are issued for the purpose of expansion and funding the different activities of the corporate houses.
Agencies like CRISIL, CARE and ICRA determine the degree of safety. This is determined by the ability to payback the money to the individual.
- The bond funds which are issued by the government at the state level are referred to as municipal bond funds. The bond funds issued by the municipal body do not levy taxes.
- Bond funds which are supported by Mortgage securities. The mortgage security bond funds utilizes residential mortgage securities.
Depending on the date of maturity of the bond funds the following types of bond funds are prevalent.
- Bond Funds for a short term:
Duration ranges up to 2 years. Bills, certificate of deposit and commercial paper are included in this type.
- Bond funds for a longer period:
Duration is ten years and above is remaining for attaining maturity.
- Bond funds which are intermediate:
These include the bond funds which have date of maturity ranging between 2 years and 10 years.