The first thing to consider is that Bond Funds, which may hold bonds exclusively, are not in reality fixed income securities. They do not provide guaranteed income, and they do not promise repayment of principal. Fund managers can trade in and out of securities solely at the discretion of that manager. The risk-return profile may, in fact, change every day. Bond Funds generally have monthly payments to holders, but the amount will vary.
Bond Funds do, however, give investors low-cost easy access to the fixed income asset class. Fund Managers and Fund Families can provide investors with a great deal of expertise. Bond Funds, though they do not have guaranteed returns or payment streams, can be found to fit all types of risk preferences and risk aversions. Access to individual Bonds, though improving, can be difficult and expensive. Many types of Bonds require large initial investments. Bond Funds can be purchased opening at a few thousand dollars; furthermore, Bond Funds give investors easy diversification within the target asset class. (The different types of Bond Funds are examined in our Mutual Fund Resource department)
So, which to choose? Bond Funds are probably the right choice for investors who only wish to invest a few thousand dollars. It is difficult, if not impossible, to obtain any realistic diversification with just a few thousand. US Treasury Bonds, which are risk-free and relatively easy to purchase, are a notable exception. Investors with more funds at their disposal might want to purchase individual Bonds with varying credit classes, characteristics and maturities.