Extension Risk

The risk that rising interest rates will slow the anticipated rate at which mortgages or other loans in a pool will be repaid, causing investors to find their principal committed longer than expected. As a result, they may miss the opportunity to earn a higher rate of interest on their money.

Remarks: Bond funds including mutual funds (open-end and closed-end, actively managed and indexed), exchange-traded funds and unit investment trusts offer a convenient and affordable way to invest in a diversified portfolio of bonds, but a bond fund investment can differ from a bond investment in ways that are important to understand.