A bond fund generally invests its assets in bonds or debt instruments issued by governments, public organisations, banks and commercial organisations. Returns are generated by recurrent interest earned from the underlying bonds, profit earned from trading the bonds in the market, and exchange rate hikes in the case of foreign currency bonds. While bond funds are generally considered a lower-risk investment than equity funds, members should take note of the following risks: When interest rates rise or fall, bond prices may fluctuate, resulting in a drop in the fund price. Members should take the interest rate risk into account before investment. If the fund invests in bonds denominated in a foreign currency, the depreciation of that foreign currency vis-à-vis the Hong Kong dollar may lead to a drop in the price of the fund (which is denominated in Hong Kong dollar). If the fund invests in a bond whose credit rating is downgraded, it may result in a drop in the price of the fund.