<prompt> Human: I have an OK understanding of the basics of bond mechanics, but I cant seem to find a good write-up on how exactly bond funds e.g. Vanguards total bond fund index work.The main thing I do not understand is if the bond fund acts as an ETF-like instrument that simply tracks the priceyield of bonds and can therefore lose principal, or if its a mutual fund that simply buys diversified bonds, and provides a ROI equal to the actual bonds with reinvested coupons, minus the expense ratio.Because unless Im confusing something, an ETF-esque vehicle could lose principal, whereas a bond could not unless the government defaults.  <response>: A single physical bond if you hold it for its life say 10 yrs for a 10yr bond will pay you its yield. If instead after a year you went to sell it and interest rates had gone up, you would in effect lose principle ie the future payments would be worth less. A bond ETF or mutual fund will tend to target a certain maturity of bond or duration, which is similar and hold a bundle of bonds, periodically selling and buying to keep the average duration around target. That means you will get paid coupons but also your principle will vary.So its very similar as if youd bought the physical bond, held it for a year so its now a nine year, solid if and bought another 10yr. 