It is important to consider a fund s risk in relation to its potential return. Because the effect of inflation is minimal, these investments carry very little risk for the investor. The value of the securities is generally near or equal to the value of the money invested, plus interest that is automatically reinvested. The interest rates fluctuate on a daily basis. U. S. Treasury Bill a government-backed security that reaches maturity between a few months to a year.
Bankers Acceptance a financial draft drawn on banks that is often resold as a short-term investment.
These funds invest primarily in fixed income obligations, such as bonds, which are formal certificates of debt, usually issued by corporations or the government. Because such securities represent money lent for a relatively long period of time at a specific rate of interest, the effect of inflation is greater than on short-term investments such as certificates of deposit. The income fund manager purchases securities that will provide the highest returns in dividends and interest, and which are also consistent with the safety of the investor. Money earned is automatically reinvested. Municipal bond a security issued by state or local government for which interest accrued is tax-deferred.