The government bond funds are an investment like any other bond. Government Bonds from the U.S. are considered to be some of the safest bonds you can buy. Not all governments are as reliable and secure in repaying their debts, but for most cases, buying government bonds tend to be the safest bond investment.
Purchase Government Bonds
If you are interested in purchasing U.S. bonds, you can do so through brokers and banks, or directly through the Federal Reserve Banks.
To purchase a treasury bond, one pays the initial price can be at, higher or lower than the face value of a bond. After purchasing, a government bond will pay interest every six months until they mature. The bond also has a set maturity time up to 30 years, after which, the buyer is paid the bonds face value.
These bonds are issued to help in financially supporting the federal government, and as such will be sold by the government so long as they need more money. There are even new inflation-indexed bonds (I-bonds) which are there to help protect the purchaser from the effects of inflation. While the profit is minimal and the investment period is long, this is still a good investment. It is ideal for those who are content with safe, small returns, but want to ensure a return regardless of inflation.
Drawbacks of Government Bonds
The same points that offer security to investors diminish the investors profit for government bonds. The high level of security in the government bonds make them offer moderate returns, since there is very little risk. One can use the purchase of such bonds to diversify a portfolio and minimize risk.
Another drawback is the longer time it takes for the bond to mature. The principal cannot be regained until the bond is retired at its maturity, which can be up to 30 years down the line unless the bond is resold. Such a trade of bonds would still require a transaction fee for the broker or a bank, and cost some portion of the money that they would otherwise receive if they had been patient and held the bond until maturity.