There are several ways to invest in bonds:

• Directly through the Treasury Department (1-800-722-2678)
• Through a brokerage firm, although not all brokers buy and sell them
• Through a mutual fund company that offers bond mutual funds

A bond mutual fund has the following benefits:

• You are more diversified.
• A professional money manager decides which bonds to buy and sell.
• You have easy access to your money and may be entitled to check-writing privileges.

However, the value of your bond investment may go above or below the amount you invested.

The classification of a bond mutual fund is based upon the type of bonds it purchases. Often categories overlap and the fund manager purchases a mixture of bonds, such as corporate and government bonds. You can even buy index bond funds that spread your investment among the entire bond market or certain kinds of bonds.

Bond funds are also differentiated by whether they buy short, medium or long-term bonds. As an example, if you invest in a short-term bond fund, the money manager buys bonds that mature in a relatively short period of time. Because they invest in short-term bonds, short-term bond funds are less likely to drop in value due to rising interest rates. Short-term bond funds are a slightly riskier alternative to money market funds.

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