What Are Bond Funds?

By Adam Levy – Updated Apr 9, 2025 at 9:20 AM EST

Key Points

Bond funds enable easier, diversified bond investment with a lower cost than individual bonds.
Different bond fund types cater to varying risk levels, from safe government bonds to high-yield junk bonds.
Total bond fund performance should be assessed by considering both interest payments and NAV changes.
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A bond fund is an investment vehicle that pools capital from multiple investors to buy a portfolio of bonds or other debt instruments. Bond funds are often a more efficient way for individual investors to gain exposure to the asset class than buying individual securities, with the added value of better diversification.

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An infographic comparing the differences between bond funds and individual bonds. — Image source: The Motley Fool

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Junk Bonds

Learn what a junk bond is, see real examples of junk bond companies & decide whether they are a good choice.

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Pros	Cons
You can invest in lots of different bonds at once to spread out your risk.	Management fees and sales fees.
Bond funds are typically easier to buy and sell than individual bonds.	Less predictable future market value.
Monthly income.	No control over capital gains and cost basis.
Low minimum investment.
Automatically reinvest interest payments.

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The bottom line on bond funds

Investors looking to add bonds to diversify their portfolio will do well with a bond fund. Not only is buying a bond fund easier than buying a portfolio of individual bonds, but it’s often less expensive when you factor in the commissions and costs associated with buying individual securities. The ability to buy a bond fund and keep your assets there without having to reinvest once your bonds reach maturity also makes it the simplest route to bond investing for most individuals.

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About the Author

Adam Levy is a contributing Motley Fool stock market analyst covering technology, consumer, and financial stocks and how policy, economic, and consumer trends shape personal finance, Social Security and retirement savings. Before The Motley Fool, Adam was a financial advisor at Edward Jones. He studied finance and electrical engineering at Carnegie Mellon University.

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