The Different Types of Mutual Bond Funds

Mutual bond funds are a type of mutual fund that invests in bonds as the underlying asset. This type of fund pools the money together of the investors and use it to purchase many different bonds. The interest payments from the bonds are then returned to the investors in the fund. There are several different types of bond funds that an investor has to choose from. Here are some of the different types of mutual bond funds that are available. 

Government Bond Funds

Government bonds funds are considered to be one of the safest types of investment that is available. With this type of fund, money is invested into savings bonds and Treasury securities. All of the investments that are chosen this fund are backed up by the full faith and credit of the United States government. Interest rates for this type of investment are a little bit lower than what you could get from other types of bond funds. However, many investors are more than willing to sacrifice a little bit of interest for more safety.

Corporate Bond Funds

Another type of mutual fund fund that you could invest in is a corporate bond fund. This type of fund uses its money to invest in bonds that are issued by corporations. Corporate bonds are rated by financial publications such as MorningStar. The companies that have the best credit history will receive the highest bond ratings. These ratings typically pay the lowest interest rates but they are considered to be very safe. Even though this type of investment is not as safe as investing in the federal government, many people consider it to be fairly safe. Even if a company goes out of business, there is a good chance that you will be able to get your initial investment back.

Junk Bond Funds

Junk bonds are another type of bond that can be utilized as the underlying investment in a mutual fund. Junk bonds are corporate bonds that are rated low by the bond rating organizations. These companies are considered to be a high credit risk. Because of this, these bonds have to pay a higher rate of interest in order to attract investors. Investing in junk bond funds is safer than investing directly into junk bonds because you have a little bit of diversification and professional management to help you. However, it is still considered to be a risky endeavor because the companies are on the verge of default.

Municipal Bond Funds

A municipal bond is a bond that is issued by a public municipalities such as a school system or a local government. Many people like to invest in municipal bond funds because all of the interest that you receive is exempt from federal taxes. Depending on your tax bracket, this can be very attractive because you could have to pay as much as 35% on interest that is earned from other sources. These are also considered to be safe because you are investing in government organizations for the most part.