How much do you need to invest?
If you've below $90,000 at your disposal, and you are looking for the tax-free income sources, then the most optimal option is perhaps a municipal-bond funds. That is because the diversified portfolios of individual municipals needs the commitments of no less than $90,000. (Almost all munis are available in lots of $25,000.) High-grade muni bond funds need at least about $3,000; American Century's Benham funds requires $2,500 or $5,000, depending on the funds; and Scudder allwos you to have at least $2,500.
What types of bond are you interested in?
If your answer is the corporate bonds, it means, the best strategy is perhaps to select the bond funds. Corporate bond commonly take up an expensive stake -- and have a few burdens for a common investor: plentiful transaction expenses, the lack of tax shelter and the chance that the good ones is going to be called by an issuer, closing the income source streams.
(Federal mortgage bonds is also hard to purchase on its own, but here we do not advocate in taking a fund. As a lot of investors have learned this the hard way, mortgage fund can give reasonably bigger yields compared to Treasurys, however that additional income source can come at a cruel expenses down the road.)
Are you willing to pay the price for that convenience?
A few income oriented people have been lured into funds as they ease matters: a lot of funds give yields every month, instead of every year or biyearly, allowing money handling a a lot easier affair. Allowing a tradeoff for the convenience' sake is depending upon every person, but I believe that, in the end, for many investors it is worth neither the extra risk sof bond funs nor the extra costs.
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