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 four 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. Investors can click here to see the complete list of diversified bond funds.

PIMCO Income A (PONAX - Free Report) invests a minimum of 65% of its assets in fixed income securities from a wide range of sectors. These securities may include options, futures contracts and swap agreements. PONAX may invest not more than half of its assets in securities that are rated below investment grade. The fund seeks maximization of income. PIMCO Income A has returned 9.1% over the last one-year period.

PONAX has an expense ratio of 0.85% compared with the category average of 1.05%.

Putnam Diversified Income Y (PDVYX - Free Report) seeks high income consistent with capital preservation. PDVYX invests primarily in securitized debt instruments and other obligations that are investment-grade or below-investment-grade in quality and issued by companies and governments based globally. Putnam Diversified Income Y has returned 12.6% over the last one-year period.

As of March 2017, PDVYX held 1336 issues, with 24.28% of its assets invested in FNMA.

AB Unconstrained Bond Advisor (AGSIX - Free Report) seeks growth of income, consistent with preservation of capital. AGSIX invests a bulk of its assets in a diversified portfolio of fixed-income securities issued by both domestic and foreign companies. Its portfolio duration is expected to remain from negative three years to positive seven years. AB Unconstrained Bond Advisor has returned 7.3% over the last one-year period.

AGSIX has an expense ratio of 0.65% compared with the category average of 1.19%.

Fidelity Strategic Income Fund (FSICX - Free Report) seeks a high level of current income and seeks capital appreciation. FSICX invests primarily in debt securities, including lower-quality debt securities, allocated among four general investment categories like high yield securities, U.S. Government and investment-grade securities, emerging market securities, and foreign developed market securities. Fidelity Strategic Income Fund has returned 6.6% over the last one-year period.

Joanna Bewick is one of the fund managers of FSICX since 2008.