An index fund essentially sinks its money into the market in a way determined by some market index and does almost no further trading. This might be a bond or a stock index. For example, a stock index fund based on the Dow Jones Industrial Average would buy shares in the 30 stocks that make up the Dow, only buying or selling shares as needed to invest new money or to cash out investors. The advantage of an index fund is the very low expenses. After all, it doesn't cost much to run one.
Bond funds buy bonds issued by many different types of companies.
Variations on this type of fund include corporate bond funds and government bond funds. Holding long-term bonds opens the owner to the risk that interest rates may increase, dropping the value of the bond. These funds buy bonds issued by municipalities. Income from these securities are not subject to US federal income tax. Because the risk of default on junk bonds is high when compared to high-quality bonds, these funds have an added degree of volatility and risk.