4 Reasons to Invest in Bond Mutual Funds

There are several potential reasons that you may want to consider investing in bond mutual funds. Here are a few benefits of investing in bond mutual funds and why you should take a look at them. 

1. Get Involved in Bonds

Bonds are one of the most secure forms of investment available to the average person. A bond is a debt instrument that is offered by a corporation or government in return for interest payments. While they can have lower rates of interest than other investments, they are very steady and safe methods of investment. Buying shares in a bond mutual fund provides you with a way to get involved in the market. 

2. Simple Process

Buying shares in a bond mutual fund is much easier than actually buying bonds. When you buy bonds, there is really no central exchange like with stocks. While there is a bond exchange, it is limited in scope. Otherwise, you have to open an account with a bond broker for at least $5000 or find a large investment company that deals with bonds. For many investors, these options are simply not feasible. When you want to get involved in the bond market without all of the usual hassle, bond mutual funds are a great way to do so. You can simply buy the shares the same way that you would buy any other mutual fund shares. 

3. Diversification

Another huge advantage of investing in a bond mutual fund is the diversification that it provides you. When you invest in a single bond, there is a certain amount of risk that the particular company that issued the bond will go bankrupt. If that were to happen, you would not receive the interest payments that you were expecting in the future. And as a creditor, although you would have a chance of getting back the money from your initial investment, if the company didn't have enough assets, you would not get that money either. Therefore, you could potentially lose your whole investment if you chose the wrong company. 

With a bond mutual fund, you do not have to worry about this problem as much. Bond mutual funds invest in several different bonds and companies. Therefore, if one company went under, it would hurt a little bit, but the entire portfolio would not be destroyed. Since you would own only a share of the bond fund, it would not hurt you nearly as much. This provides an extra layer of safety for you as an investor and prevents you from losing your entire deposit all at once. 

4. Choose Your Risk

There are bond mutual funds for every type of investment strategy. If you like high risk and high reward, you can buy into a bond fund that invests in junk bonds. If you like a safer investment plan, there are many funds that buy bonds only from the highest rated companies. 

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