5 Top Fixed-Income Funds to Consider for 2025

Introduction:

Fixed-income investments remain a reliable option for portfolio diversification, especially amidst changing economic conditions. In 2022, short-maturity bonds proved resilient during aggressive Federal Reserve rate hikes. As 2025 approaches, investors are evaluating bond funds that balance yield, risk, and convenience. Here are five top fixed-income funds to consider, including mutual funds and ETFs tailored for varied investor needs.

Summary 

1. Vanguard Total World Bond ETF (BNDW)

2. Vanguard Tax-Exempt Bond Index Fund Admiral Shares (VTEAX)

3. Vanguard Core-Plus Bond Fund Investor Shares (VCPIX)

4. Global X 1-3 Month T-Bill ETF(CLIP)

5. Invesco Emerging Markets Sovereign Debt ETF (PCY)

1. Vanguard Total World Bond ETF (BNDW)

• Expense Ratio: 0.05%
• Yield to Maturity: 4.7%
• Key Features:
  • Globally diversified bond exposure with over 18,000 bonds.
  • Tracks the Bloomberg Global Aggregate ex-USD Float Adjusted RIC Capped Index.
  • Moderate duration of 6.5 years.

Best For: Investors seeking global diversification in a single, low-cost fund.

2. Vanguard Tax-Exempt Bond Index Fund Admiral Shares (VTEAX)

• Expense Ratio: 0.09%
• Yield to Maturity: 3.6%
• Key Features:
  • Tracks the Standard & Poor's National AMT-Free Municipal Bond Index.
  • Tax-exempt municipal bonds rated “AAA" or “AA."
  • Ideal for high-income investors aiming for after-tax savings.
• Best For: Tax-conscious investors using taxable brokerage accounts.

3. Vanguard Core-Plus Bond Fund Investor Shares (VCPIX)

• Expense Ratio: 0.30%
• Yield to Maturity: 5.2%
• Key Features:
  • Actively managed “core plus" strategy blending investment-grade and high-yield bonds.
  • Minimum investment of $3,000.
  • Duration of 5.8 years.
• Best For: Investors with higher risk tolerance seeking to outperform indices.

4. Global X 1-3 Month T-Bill ETF (CLIP)

• Expense Ratio: 0.07%
• Yield to Maturity: 4.1%
• Key Features:
  • Tracks Solactive 1-3 Month U.S. T-Bill Index with minimal risk.
  • Very low interest rate sensitivity (duration: 0.1 years).
  • Income exempt from state and local taxes.
• Best For: Investors prioritizing liquidity and low risk.

5. Invesco Emerging Markets Sovereign Debt ETF (PCY)

• Expense Ratio: 0.50%
• Yield to Maturity: 7.2%
• Key Features:
  • Focuses on bonds from over 20 emerging-market countries.
  • Higher yield compensates for credit and currency risks.
  • Duration of 10.9 years for interest rate sensitivity.
• Best For: Investors seeking high-yield opportunities outside traditional bond markets.

FAQs

Q.1. What are fixed-income funds?

A.1. Fixed-income funds pool investor money to invest in bonds and other income-generating securities. They provide diversification, steady income, and convenience compared to managing individual bonds.

Q.2. Why consider bond funds in 2025?

A.2. With potential economic changes, bond funds can offer stability, tax advantages, or high yields, depending on the fund type. They also diversify portfolios and hedge against equity volatility.

Q.3. What risks are associated with fixed-income funds?

A.3. Risks include interest rate fluctuations, credit risk, and inflation. Long-term bonds are more sensitive to interest rate changes, while emerging-market bonds have higher credit and currency risks.

Q.4. How do I choose the right fixed-income fund?

A.4. Assess your risk tolerance, investment horizon, tax considerations, and income goals. Low-cost funds like ETFs are great for beginners, while actively managed funds suit those seeking higher returns.

Q.5. What is “yield to maturity"?

A.5. Yield to maturity reflects the total return an investor can expect if the bond is held until it matures, considering its price, interest payments, and duration.

Conclusion

Fixed-income funds are versatile investment tools offering various benefits like stability, diversification, and tax efficiency. From globally diversified funds like BNDW to high-yield emerging-market options like PCY, 2025 offers a wide array of opportunities to match different financial goals. Carefully evaluate your portfolio needs and align them with the fund's characteristics for optimal returns.

Important Note: Please Read Before You Invest

We’re just sharing some helpful tips, but remember, investing comes with risks. We can’t promise that these tips will always work or that you’ll make money. Everyone’s financial situation is different, so it’s smart to research or talk to a financial advisor before investing. Using these tips, you agree you’re responsible for your investment decisions and results.