A short-term government bond fund is a mutual fund that is limited by its investment objectives and fund bylaws to invest primarily in 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.

Mutual funds that invest in government debt securities are among the most secure investment options that provide regular income while protecting the capital invested. Funds that are part of this category bring a great deal of stability to a portfolio with a large proportion of equity. They pay out dividends more frequently than individual bonds. Hence, these are considered the safest in the bond fund category and are ideal for risk-averse investors.

Below, we share with you three top-ranked short-term government bond mutual funds — GMO US Treasury GUSTX, Federated Hermes Short-Term Govt IS FSGVX and Vanguard Short Term Treasury Fund VFIRX. Each has earned 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 funds.

GMO US Treasury invests most of its net assets in Direct U.S. Treasury Obligations and collateralized repurchase agreements that include U.S. Treasury bills, bonds and notes and other securities issued by the U.S. Treasury, as well as Separately Traded Registered Interest and Principal Securities and other zero-coupon securities. The fund has returned 4.2% over the past three years.

As of November 2024, GUSTX had 33.41% of its net assets in U.S. Treasury Floating Rate Note.

Federated Hermes Short-Term Govt IS primarily invests in a portfolio generally consisting of U.S. Treasury securities and U.S. government agency securities with maturities of not less than one year and not more than three years, and related derivative contracts. The fund has returned 2% over the past three years.

J. Andrew Kirschler has been one of the fund managers of FSGVX since July 2013.

Vanguard Short-Term Treasury Fund invests the majority of its assets in U.S. Treasury securities, which include bills, bonds and notes issued by the U.S. Treasury. It is expected to maintain a dollar-weighted average maturity of 1 to 4 years. The fund has returned 1.7% over the past three years.

VFIRX has an expense ratio of 0.10%.

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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This article originally published on Zacks Investment Research (zacks.com).

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