Mutual funds investing in debt securities are among the most secure investment options which provide regular income while protecting the capital invested. Funds which are part of this category bring a great deal of stability to portfolios with a large proportion of equity, while providing dividends more frequently than individual bonds. U.S. government bond funds usually invest in Treasury bills, notes and securities issued by government agencies. They are considered to be the safest in the bond fund category and are ideal options for the risk-averse investor.
Meanwhile, a short-term government bond fund is a mutual fund that's limited by its investment objectives and fund bylaws to investing primarily in short-term obligations of the federal government or its agencies. Depending on the fund's definition, short term can be up to five years.
Below we will share with you three top-rated short-term government bond mutual funds. Each has earned a Zacks Mutual Fund #1 Rank (Strong Buy) as we expect these mutual funds to outperform their peers in the future.
Vanguard Short Term Federal Fund (MUTF:VSGBX) seeks current income. VSGBX invests the majority of its assets in short-term bonds issued by the U.S. government. VSGBX also invests in U.S. Treasury securities and in repurchase agreements backed by U.S. Treasury or federal agency securities. VSGBX maintains a dollar-weighted average maturity between 1 and 4 years. The Vanguard Short-Term Federal Investor fund has a three-year annualized return of 1.1%.
Brian Quigley is the fund manager since January 2015.
Fidelity Spartan Short Term Trust Bond Index Fund (MUTF:FSBIX) invests a major portion of its assets in securities included in the Barclays U.S. 1-5 Year Treasury Bond Index. FSBIX uses statistical tools such as duration, maturity, interest rate sensitivity, security structure and credit quality to imitate the returns of the index. The Fidelity Spartan Short-Term Treasury Bond Index Investor fund has a three-year annualized return of 1.1%.
FSBIX has an expense ratio of 0.20% as compared to the category average of 0.79%.
API Multi-Asset Income Fund A (MUTF:APIUX) seeks current income with limited credit risk. APIUX seeks to achieve its investment objective by investing primarily in income-producing securities, including U.S. government securities and corporate bonds. The API Multi-Asset Income A fund has a three-year annualized return of 0.8%.
As of March 2016, APIUX held 225 issues, with 2.92% of its assets invested in US Treasury Note 2.25%.