Mutual funds investing in debt securities are among the most secure options for earning regular income while protecting the capital invested. Funds that are part of this category bring a great deal of stability to one’s portfolio with a large proportion of equity, while providing dividends more frequently than individual bonds.

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U.S. government bond funds usually invest in Treasury bills, notes and securities issued by government agencies. They are considered the safest in the bond fund category and are ideal for risk-averse investors.

Meanwhile, a short-term government bond fund is a mutual fund limited by its investment objectives and fund bylaws to invest primarily in the short-term obligations of the federal government or its agencies. Depending on the fund’s definition, the short term can be up to five years.

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Below, we share with you three top-ranked short-term government bond funds, viz., SEI Short-Duration Government TCSGX, Loomis Sayles Ltd Term Govt and Agency NEFLX and Vanguard Short-Term Federal Inv VSGBX. Each has a Zacks Mutual Fund Rank #1 (Strong Buy) and is expected to outperform its peers in the future. Investors can click here to see the complete list of municipal bond funds.

SEI Short-Duration Government fund seeks to preserve principal value and maintain liquidity while providing current income. TCSGX invests most of its assets in U.S. Treasury obligations and obligations issued or guaranteed as principal and interest by agencies or instrumentalities of the U.S. government, including mortgage-backed securities and repurchase agreements collateralized by such obligations.

SEI Short-Duration Government has three-year annualized returns of 1.5%. As of the end of July 2024, TCSGX held 28.9% of its net assets in miscellaneous bonds.

Loomis Sayles Ltd Term Govt and Agency fund seeks a high current return consistent with preservation of capital.  NEFLX invests most of its assets in investments issued or guaranteed by the U.S. government, its agencies, or instrumentalities.

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Loomis Sayles Ltd Term Govt and Agency has three-year annualized returns of 1.3%. NEFLX has an expense ratio of 0.70%.

Vanguard Short-Term Federal Inv fund seeks a high level of interest income. VSGBX invests primarily in short-term securities issued by U.S. government agencies.

Vanguard Short-Term Federal Inv has three-year annualized returns of 0.8%. Brian W. Quigley has been one of the fund managers of VSGBX since 2015.

To view the Zacks Rank and the past performance of all short-term government bond mutual funds, investors can click here to see the complete list of short-term government bond mutual funds.

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