Bond is a financial contract issued by the government, financial institutions and industrial and commercial enterprises to investors when they borrow money directly from the society to raise funds, and promises to pay interest at a certain expected annualized interest rate and repay the principal according to the agreed conditions. Bond fund is a kind of fund issued by fund companies, which mainly invests in the bond market. The difference between bond funds and bonds is mainly reflected in the following aspects:

The expected annualized expected return of bond funds is not as fixed as the interest of bonds;

Bond funds have no clear maturity date;

The expected annualized rate of return of bond funds is more difficult to predict than that of a single bond bought and held at maturity;

By diversifying investment, bond funds can effectively avoid the higher credit risk that a single bond may face. In addition, because bond funds have no fixed maturity date, the expected annualized interest rate risk will usually remain at a certain level.

The role of bond funds

Bond fund is a fund whose bond investment accounts for more than 80% of the fund assets, which is attractive to investors who pursue stable income. Bond funds are usually less volatile than equity funds, so they are often regarded by investors as investment tools with low expected annualized expected returns and low risks. In addition, when bond funds and stock funds make proper portfolio investment, they can often better disperse investment risks, so bond funds are often regarded as an indispensable part of portfolio investment.

Investment risk of bond funds

Expected annualized interest rate risk. Bond prices are closely related to the expected annualized interest rate changes in the market, and change in the opposite direction. The longer the average term of bond funds, the higher the expected annualized interest rate risk of bond funds;

Credit risk. Credit risk refers to the risk that bond issuers can't pay interest and repay principal on time. Some bond rating agencies will rate the credit rating of bonds. If the credit rating of a bond declines, the price of the bond will decline, and the net value of the fund holding the bond will also decline;

Early redemption risk. When the market expects the annualized interest rate to drop, bond issuers can raise funds at a lower expected annualized interest rate, so they can repay high-interest bonds in advance. Funds holding early redemption bonds will not only fail to obtain the expected annualized income of high interest rates, but also face the risk of reinvestment.

Inflation risk. Inflation will devour the purchasing power formed by the fixed expected annualized expected return, so investors in bond funds can't ignore this risk and must buy some stock funds appropriately.