Government Bond Funds

Government bond funds, also known as Treasury bond funds, are a type of mutual fund that invests by lending the U.S. government money through the purchase of U.S. Treasury bills, bonds or notes.

What's the biggest advantage of investing in treasuries? That's easy--there's practically no risk involved. Their safety lies in the fact that they're obligations of the federal government. The chance that the federal government will renege on you is pretty close to nil. In other words, in the world of investment vehicles, U.S. treasuries are as close to a sure thing as you'll ever get.

Another advantage that treasuries (and some bonds issued by government agencies) have is that the interest you receive is not taxed at the state or local level. This may help to offset the disadvantage of treasuries, namely that the interest rates that they pay are on the lower end of the scale. However, a low interest rate is to be expected with such a low-risk security.