Types of bond funds and what to consider before investing in them
A bond fund, or a debt fund, is a fund that invests in bonds or other such debt securities. Like stock and money funds, bond funds pay regular monthly dividends like interest on securities and on invested capital appreciation.
Examples of bond funds that pay monthly dividends are Vanguard International High Dividend Yield Index, Fidelity Equity-Income, and Fidelity Strategic Dividend & Income.
Examples of foreign bond funds are American Century International Bond A, Fidelity® International Bond, Western Asset Global Government Bond I, T. Rowe Price Global Multi-Sector Bond Fund, Morgan Stanley Global Fixed Income Opportunities Fund, and Payden Global Fixed Income Fund.
A few tax-free bond funds are Vanguard Short-Term IInvestment-GradeInvestor, Metropolitan West Unconstrained Bond, and Eaton Vance Municipal Income Trust
The top treasury bond funds are: Fidelity Spartan Short-Term Treasury Bond Index Investor, API Multi-Asset Income A, MassMutual Select Strategic Bond A, Dreyfus US Treasury Long-Term and PIMCO Real Return A.
Things to consider before investing in bond funds are as follows:
Analyze your options. Long-term bonds yield more income, and while interest-bearing bonds are attractive to some, some prefer short-term bonds. Also, create a pecking order of bonds in the portfolio. Having a bond maturing every year regularly balances the risk of investment and returns the capital gradually.
Municipal bonds are an attractive investment for those who are looking for assets that offer tax-free income, and interest payments from municipal bonds do not invite federal taxes, similar to how bonds issued by the state in which the investor resides are free of state taxes. Invesco High Yield Municipal Fund, MFS® Municipal High Income Fund, and Nuveen High Yield Municipal Bond Fund NHMAX are some of the best high yielding municipal bond funds.
Also called junk bonds, a high-yield corporate bond offers high rates of interest owing to the higher risk of default. Indicating the extent of risk investors are inclined to take are some examples of high yielding corporate bonds such as iShares iBoxx $ High Yield Corporate Bond ETF and SPDR Barclays High Yield Bond ETF.
