Defined-maturity bonds

January 22, 2014


Considered a cross between individual bonds and bond funds, defined-maturity bond funds (DMFs) are viewed by some as an alternative product for building fixed income portfolios. A new Vanguard research paper, "Defined-Maturity Bond Funds," by Joel M. Dickson, John H. Escario, and Samantha S. Choa, examines the role of DMFs in a portfolio and considers the tradeoffs of which investors should be aware. Although DMFs may be helpful to investors wanting to "pre-fund" predictable future liabilities, traditional bond funds generally provide cost and structural advantages for investors implementing and maintaining fixed income exposure in their asset allocation approaches.



  • All investments are subject to risk, including possible loss of principal. Diversification does not ensure a profit or protect against a loss.
  • Past performance is not a guarantee of future results.
  • Bond funds are subject to the risk that an issuer will fail to make payments on time, and that bond prices will decline because of rising interest rates or negative perceptions of an issuer's ability to make payments. High-yield bonds generally have medium- and lower-range credit-quality ratings and are therefore subject to a higher level of credit risk than bonds with higher credit-quality ratings.

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