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The Basics |
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Types of Bond Funds
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A bond is basically an IOU issued
by a corporation or government entity. When investors buy a bond,
they are essentially lending the issuer money for a specified amount
of time. In return, the issuer makes interest payments and returns
the principal on a set date, which is known as the bond's maturity
date.
Index Bond Funds: Index bond funds seek to replicate the performance
of a major bond market index (e.g., the Lehman Brothers U.S. Aggregate
Index).1
Short-Term Bond Funds: Short-term bond funds seek to provide slightly
more income than fixed-price money market funds. Typically, short-term
bond funds maintain a portfolio invested in bonds with an average
maturity or average effective maturity of three years or less, which
can help reduce price fluctuation from interest-rate changes.
Intermediate-Term Bond
Funds: Intermediate-term bond funds seek to provide
more income than potentially more stable short-term bond funds,
and a higher level of price stability when compared to higher-yielding,
long-term bond funds. These funds generally invest in bonds with an
average maturity or average effective maturity of 10 years or
less.
Long-Term Bond Funds:
Long-term bond funds seek to provide the highest level of income, which
comes with potentially less price stability than shorter-term funds. These
funds are unrestricted as to maturity requirements, but typically have
an average portfolio maturity well above 10 years. They are most at risk
to interest-rate increases.
1.The Lehman Brothers U.S. Aggregate Index is a widely accepted, unmanaged total return index of corporate, government and government-agency debt instruments, mortgage-backed securities and asset-backed securities with an average maturity of 1-10 years. Investors cannot invest directly in an index.
Mutual funds that invest in bonds are subject to certain risks, including interest rate risk, credit risk and inflation risk.
Investors should consider the investment objectives, risks, charges, and expenses of a fund carefully before investing. Download a prospectus that contains this and other information about a fund, and read it carefully before investing.
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