What investment fund type combines features of a bond fund and a money market fund to provide potentially higher returns?

A short-term bond fund combines features of both a bond fund and a money market fund. This type of fund primarily invests in short-term debt instruments, such as government bonds and corporate bonds that have maturities typically less than five years. The key advantage of these funds lies in their ability to offer potentially higher returns than traditional money market funds while maintaining a lower level of risk compared to long-term bond funds.

The nature of short-term interest rates means these funds are responsive to changes in rates, often resulting in more favorable returns in rising rate environments. They provide investors with a balance of liquidity and yield, making them an appealing option for those looking for moderate returns with relatively lower risk compared to long-term options. This dual nature helps in attracting risk-averse investors seeking to avoid the volatility associated with long-duration bonds while still aiming for better yields than what a money market fund would typically offer.