Definition of short-term bond fund

bond mutual fund investing in short-tointermediate term bonds. Such bonds, maturing in 3 to 5 years, typically pay higher yields than the shortest maturity bonds of 1 year or less, which are held by ultra-short-term bond funds. Short-term bond funds also usually pay higher yields than money market mutual funds, which buy short-term commercial paper maturing in 90 days or less. However, short-term bond funds usually yield less than long-term bond funds holding bonds maturing in 10 to 30 years. Short-term bond funds, while yielding less than long-term bond funds, are also considerably less volatile, meaning that their value falls less when interest rates rise and rises less when interest rates fall. Many short-term bond funds offer checkwriting privileges, making them a source of easy liquidity. However, shareholders should remember than such checks will likely result in the realization of short- or long-term capital gains or losses.