When the need for a regular income stream takes precedence over appreciation of capital, investors generally choose bonds over stocks. Mutual funds provide a convenient and affordable method of investing in bonds. This is because the cost of holding a set of individual bonds is considerably higher. Diversified bond funds further reduce the risk associated with such instruments by holding securities across classes and sectors. Thus, any negative fluctuation in a specific sector has only a marginal effect on the fund’s fortunes. Below we will share with you 5 top rated diversified bond funds. Each has earned a Zacks #1 Rank (Strong Buy) as we expect the fund to outperform its peers in the future. To view the Zacks Rank and past performance of all diversified bond funds, then click here. Thornburg Strategic Income A ( TSIAX) seeks a significant level of current income. It invests in a wide range of domestic and foreign income generating securities. The majority of its assets are used to purchase debt securities. The relative share of assets allocated between debt and equity may change over time. The fund returned 35.92% over the last one year period. The diversified bond fund has an expense ratio of 1.25% compared to a category average of 1.17%. Fidelity Strategic Income (FSICX) invests the majority of its assets in debt securities and may purchase securities rated relatively low. It generally holds a portfolio of government emerging market and developed market securities. The fund seeks current income with capital growth as a secondary objective. It is a no load fund. The diversified bond fund returned 34.1% over the last one year period and has a ten year annualized return of 8.19%. Delaware Optimum Fixed Income A ( OAFIX) seeks high current income as well as capital appreciation. At least 80% of its assets are invested in fixed income securities. It purchases government securities, corporate debt and asset backed securities. The fund has a three year annualized return of 6.71%. The Fund Manager is Thomas H. Chow and he has managed this diversified bond fund since 2007. DWS Strategic Income A ( KSTAX) invests in domestic and foreign corporate and government bonds. The securities held by the fund may differ in terms of credit quality. It may invest all its assets in junk bonds and up to 50% of its assets in foreign debt securities. The diversified bond fund has a five year annualized return of 5.48%. As of December 2009, this diversified bond fund held 495 issues, with 2.03% of its total assets invested in Viskase Companies 11.5%. Putnam Diversified Income A ( PDINX) seeks current income as well as preservation of capital. Between 15 to 65% of its assets may be invested in domestic and foreign government securities and corporate investment grade bonds. It may also purchase domestic corporate bonds assigned a relatively lower ranking. The fund returned 55.48% over the last one year period. Michael A. Atkin is the fund manager and he has managed this diversified bond fund since 2007. To view the Zacks Rank and past performance of all diversified bond funds, then click here. About Zacks Mutual Fund Rank By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward. Learn more about the Zacks Mutual Fund Rank at http://www.zacks.com/funds/mutualfund/ Zacks Investment Research