Mutual funds having significant exposure to diversified bonds are excellent choices for investors seeking steady returns with a relatively low level of risk. Investing in funds that maintain a portfolio of bonds issued across a wide range of market sectors, also reduces sector-specific risk.

Moreover, investing in diversified bond funds is preferred to individual bond investing, as building a portfolio of the second type may prove relatively more expensive. A higher level of liquidity also makes diversified bond funds more attractive.

Below we share with you three top-ranked diversified bond mutual funds. Each has earned a Zacks Mutual Fund Rank #1 (Strong Buy) and is expected to outperform its peers in the future. 

Morgan Stanley Global Fixed Income Opportunities A (DINAX - Free Report) seeks growth of income. The fund invests a large chunk of its assets in fixed-income securities. DINAX may also invest around 65% of its assets in any particular one market segment or asset class. It may also invest not more than one-fifth of its assets in public bank loans issued by financial institutions, including banks. Morgan Stanley Global Fixed Income Opportunities A has one-year annualized returns of 5%.

As of December 2017, DINAX held 523 issues, with 7.95% of its assets invested in Us Ultra Bond Cbt Mar18 Xcbt 20180329.

Putnam Absolute Return 100 Y (PARYX - Free Report) seeks growth of returns, by maintaining a well-diversified portfolio. This portfolio reflects several uncorrelated fixed-income strategies designed to utilize market inefficiencies across multiple fixed-income sectors and global markets. Putnam Absolute Return 100 Y has returned 2.6% over the last one-year period.

PARYX has an expense ratio of 0.40% compared with the category average of 1.20%.

Putnam Diversified Income Trust A (PDINX - Free Report) seeks high income. PDINX primarily invests in bonds that are securitized debt instruments including mortgage-backed investments and in other obligations of companies as well as governments globally. Putnam Diversified Income Trust A has returned 6.4% over the last one-year period.

D. William Kohli has been one of the fund managers of PDINX since 1994.