What is a bond mutual fund?

Bond mutual funds are professionally managed investor pools that invest primarily in debt securities.

They are generally defined by a particular benchmark, sector, maturity, or credit quality of the investments in the fund. Examples of fixed income indexes include the Barclays U.S. Aggregate Bond Index2 and the Barclays U.S. Government/Credit Bond Index.3

Why would Schwab recommend bond mutual funds?

Bond mutual funds are a convenient way to own a professionally managed, diversified fixed income portfolio. If you seek credit oversight, automatic reinvestment of interest, and ease of monitoring—and you can tolerate fluctuations in monthly income and investment value—consider bond mutual funds.

What does Schwab charge to trade mutual bond funds?

Transaction fees per trade

Fund type Online trades Automated phone trades Broker-assisted trades
Mutual Fund OneSource Funds $0 $0 $25
Transaction-Fee Funds (Buys) $76 $76 Online fee + $25
Transaction-Fee Funds (Sells) $0 $0 Online fee + $25

Take a closer look at the benefits.

  • Professional management

    Often, when you own a bond mutual fund, you can benefit from the help of professional portfolio managers who specialize in certain bond sectors or strategies. They may leverage extensive research and market information to keep the fund aligned with its stated objectives. Bond fund management companies also often have credit research departments that monitor the financial state of the issuers of bonds held in the fund.

  • Diversification

    Bond mutual funds focus on investing in bonds and other debt securities. For a portfolio consisting of stocks and other investment vehicles, bond mutual funds add a diversified mix to help lower risk. In addition, bond funds can be a great way to get diversified exposure to specialized sectors like foreign or high-yield bonds versus buying individual bonds.

  • Liquidity

    Bond mutual funds can be bought and sold at the closing net asset value (NAV) each day. This helps to provide price transparency (bond mutual funds are valued each night) and liquidity (shares can be redeemed each trading day).

  • Low investment minimums

    Bond mutual funds have minimums as low as $100; for investors looking to start an investment in fixed income, they can be a great way to begin to build a diversified fixed income portfolio.

  • Automatic investing

    Schwab’s Automatic Investment Plan allows investors to automatically invest a fixed-dollar amount on a regular basis in one or more mutual funds.

  • Reinvestment of dividends and capital gains

    Investors who don’t need the income have the option to automatically reinvest interest and capital gains back in the fund. Over time, this may increase returns through compounding and by minimizing the cash portion of the portfolio.

Review the risks.

Like many investments, bond mutual funds carry the risk that the price will go down after you buy it, and since bond funds don’t have a maturity date, if the holder needs to sell they could take a loss on their principal amount. And depending on the bond fund strategies, bond mutual funds can have many of the same risks as the investments they hold, including interest rate, credit, call, liquidity, and market and event risk. In addition, other considerations include:

  • Trading limitations

    Bond funds only trade once a day, after the market closes. Because you can't transact intraday, you won’t know the exact price at which you will buy or sell a mutual fund when you place your order.

  • Limited transparency

    Mutual funds generally only disclose their portfolio holdings quarterly.

  • Lack of customization at the fund level

    Bond funds are managed according to the stated objectives in the prospectus and cannot be customized.

  • Less tax efficiency

    Bond funds may not be tax-efficient if there are high taxable yields and high capital gains. Bond funds also provide limited opportunity for implementing tax-saving strategies, such as tax-loss harvesting.

  • Lack of control

    The bond fund manager determines the timing of buys and sells for a fund. At times, the manager may be forced to sell positions in the fund to meet liquidations.

Find bond mutual funds.

Choose using a Select List®

Schwab's Mutual Fund OneSource Select List® offers top mutual fund picks from Schwab experts every quarter—helping you identify mutual funds for your portfolio. Mutual funds from this Select List offer these advantages:

  • No load
  • No transaction fee
  • Rigorous screening for factors such as performance, risk, and expenses

Mutual Fund OneSource Select List

Choose from prescreened Mutual Fund OneSource funds, including bond funds.

Income Mutual Fund Select List

Choose from prescreened funds that provide both growth potential and income.

Choose using Fund Screener

Use Schwab’s Fund Screener to search for bond mutual funds that offer exposure within various markets, industries, sectors, and asset classes to fit your investing needs.

Take advantage of resources to help you make decisions.

We're here to help

Clients of independent investment advisors: You may also contact your advisor or call Schwab Alliance at 800-515-2157.