Fixed income is an investment approach focused on preservation of capital and income. It typically includes investments like government and corporate bonds, CDs and money market funds. Fixed income can offer a steady stream of income with less risk than stocks. Bond funds are funds that invest in bonds. Bond funds are baskets that hold dozens or hundreds of individual securities (in this case, bonds).

Each bond fund has a certain objective that dictates the type of bonds held in the fund and the bond fund type or category. In general, conservative investors prefer bond funds that buy bonds with shorter maturities and higher credit quality because they have a lower risk of default and lower interest rate risk.

However, the interest received (yield) is lower with these bond funds. Conversely, bond funds investing in bonds with longer maturities and lower credit quality have greater potential for higher relative returns in exchange for the higher relative risk.