Funds & ETFs
Learn how government and corporate bonds work, how bond funds and ETFs differ from individual bonds, and what interest-rate, credit and inflation risk mean.
Bond prices can fall as well as rise. Interest-rate moves, credit risk and inflation can affect returns. Capital is at risk.
Basics
Fixed income describes investments that are designed to provide contractual or portfolio-based income, often through interest payments. Bonds are one of the main forms of fixed income.
Debt issued by governments, companies or other organisations.
Some bonds pay a fixed or variable coupon during their life.
Individual bonds normally have a maturity date, subject to the issuer meeting its obligations.
Compare structures
Neither approach is automatically safer. They differ in ownership, maturity behaviour, diversification and how capital is returned.
| Feature | Individual bond | Bond fund / ETF |
|---|---|---|
| What you own | A specific bond | A diversified portfolio of bonds |
| Maturity | Usually has a fixed maturity date | Fund itself normally has no fixed maturity |
| Income | Coupon where applicable | Distribution or accumulation depending on fund |
| Diversification | Limited unless you hold many bonds | Usually broader diversification |
| Market value | Can rise or fall before maturity | Fund price/NAV changes continuously |
| Research required | More security-specific analysis | More portfolio/fund analysis |
| Capital repayment | Principal may be repaid at maturity if issuer meets obligations | No single maturity-date return of original capital |
What you own
Maturity
Income
Diversification
Market value
Research required
Capital repayment
Topics
Educational guides — we do not invent live bond yields or provider rates here.
Risk
Fixed income can still lose money. These risks often interact rather than acting in isolation.
When market interest rates rise, existing bond prices can fall. Longer-duration bonds are generally more sensitive.
The issuer may become less able to make interest payments or repay capital.
Fixed payments can lose purchasing power when inflation rises.
Some bonds can be difficult to buy or sell quickly at an attractive price.
Income measures
The stated interest payment attached to a bond, usually expressed as a percentage of its face value.
Coupon income relative to the bond’s current market price.
An estimate of the annualised return if the bond is held to maturity and payments are made as expected, subject to the assumptions used.
Coupon and yield are not the same thing. If a bond’s market price changes, its yield can change even though the coupon does not.
Interest-rate sensitivity
Maturity tells you when an individual bond is due to repay principal. Duration is a measure of sensitivity to interest-rate changes and can be especially useful when comparing bond funds.
Generally less sensitive to changes in market interest rates.
Generally more sensitive to changes in market interest rates.
Illustrative only
A bond or fund with higher duration will generally experience a larger price change for the same move in interest rates than one with lower duration.
Index-linked
Index-linked gilts adjust with an inflation measure under their terms, so their behaviour can differ from conventional fixed-coupon gilts. Structure, timing and residual inflation risk still matter.
Portfolio context
These are educational concepts, not personalised asset-allocation advice.
Some bonds and bond funds can provide regular income.
Fixed income can behave differently from shares, although diversification does not remove risk.
Higher-quality short-duration bonds may sometimes be used where lower volatility is a priority, but capital is not guaranteed.
Some investors use bonds with particular maturities to align investments with future spending needs.
UK wrappers
Eligible bond funds, ETFs and some other fixed-income investments can often be held inside tax-advantaged wrappers such as a Stocks & Shares ISA or pension, subject to platform/product eligibility and current tax rules.
Tax treatment depends on your circumstances and rules can change.
How it works
A government or company issues debt.
The bond has defined terms such as coupon and maturity.
Coupon payments are made according to the terms, assuming the issuer can pay.
Principal is normally due at maturity, subject to the issuer meeting its obligations.
How it works
This is why bond-fund behaviour usually differs from holding one bond to maturity.
You invest in the fund, not a single bond’s face-value promise.
Holdings follow the fund’s stated strategy and risk profile.
The portfolio turns over as securities mature or are traded.
The fund itself usually has no single fixed maturity date.
Market drivers
These factors can interact. This is orientation, not market forecasting.
Credit quality
Credit ratings are opinions about an issuer’s ability to meet its obligations. Higher-rated bonds are generally viewed as having lower credit risk than lower-rated bonds, but ratings can change and do not guarantee repayment.
Generally associated with stronger perceived credit quality — still not a guarantee of repayment.
Generally associated with higher credit risk and often higher income potential — with a greater risk of loss.
Diversified access
Bond funds and ETFs can provide diversified exposure without selecting individual bonds yourself. Use the filters below to compare options.
An individual bond is not a fund or ETF. Bond funds and ETFs hold portfolios of fixed-income securities. This page sits under Funds & ETFs for navigation and discovery.
Compare
Filter UK bond and fixed-income funds by type, asset class, cost and structure. Same comparison tools as Funds & ETFs — scoped to fixed income.
Next steps
FAQs
Customer-focused answers on risk, yield, duration and wrappers — not personalised advice.
Last reviewed: 26 August 2026. Educational information only. Not personalised advice. Capital at risk where you invest.