Frequently Asked Questions About Bond Mutual Funds

How many bond mutual funds are there?
Bond funds are the second most common type of mutual fund, accounting for 1,970 of the more than 8,017 mutual funds as year-end 2007, according to ICI's monthly survey of the U.S. fund industry.

What percentage of total mutual fund assets is held in bond funds?
Approximately 14 percent - or $1.68 trillion - of total mutual fund assets are invested in bond funds. For comparison, stock funds account for 54 percent ($6.53 trillion), and money market funds comprise 26 percent ($3.12 trillion) of mutual fund assets.

Share of Total Mutual Fund Assets by Category

Note: Components may not add to 100 percent because of rounding.

Have bond fund assets changed?
Since year-end 2000, bond fund assets have grown steadily. In fact, the assets in bond funds have increased 107 percent since 2000, reaching $1.68 trillion as of the end of 2007. A little less than half of this growth is due to the inflows bond funds have experienced during the previous 8 years.

Bond Fund Assets
(billions of dollars)

What are recent bond fund flow trends?
In 2007, net flows to bond funds totaled $108.5 billion. In 2006, bond funds experienced inflows of $60.6 billion. In 2005, bond funds had an inflow of $31billion, compared to record inflow of $141 billion in 2002. Bond funds are less appealing to investors when returns are expected to be reduced by rising interest rates. In 2007, taxable bond funds had an inflow of $98 billion, while municipal bond funds experienced an inflow of $11 billion.

How do interest rates affect the flow of new cash into bond funds?
Net cash flows into bond funds are sensitive to movements in market interest rates. Net flows tend to be heaviest during extended periods of declining interest rates and high returns on bond funds. Conversely, negative net flows tend to be associated with rising interest rates and negative or low returns on bond funds. The fluctuation in bond fund flows results more from changes in sales than from changes in redemption rates.

How big are bond fund holdings relative to the U.S. bond markets?
Bond funds held 18 percent of the $2.1 trillion municipal government debt at the end of the third quarter in 2007. Furthermore, bond funds held 5 percent of the $11.9 trillion of federal government and agency debt. Bond funds held 5 percent of the $10.6 trillion of corporate and foreign debt.

February 2008