(FORTUNE Magazine) – Bond funds are pulling in the money -- $68 billion of new cash this year -- as investors try to beat the interest rates on money funds, which are at a five- year low of 5.21%. If your dollars are part of that stampede, you'll need to make some smart choices. Think carefully, for example, about buying long- term bonds when interest rates are down. Yields just might rebound. Yet they might also keep sliding, giving you a nice capital gain. Bond funds, in other words, have pitfalls and opportunities that are different from those of stock funds. A stock investor wants to be part-owner of a company, sharing in earnings that with luck will grow in years to come, along with the stock price. He's prepared for a wild ride. A bond investor, on the other hand, wants an uninterrupted stream of interest payments and, ultimately, a return of principal. He abhors uncertainty. For that reason, he spends a lot of time considering credit risk, or the likelihood that a bond issuer may not be able to meet scheduled interest payments. Generally, the greater an issuer's credit risk, the higher the yield on its bonds. A fund that invests in U.S. Treasury bonds, for example, has much less credit risk -- and a lower yield -- than one that buys junk bonds. But just buying a Treasury fund doesn't mean your money is safe from market fluctuations. Tack this memo to your memory: When interest rates fall, bond prices rise, and vice versa. If a bond does not mature for several years, it will react more strongly to rate changes. To find out how susceptible your fund is to changes in interest rates, check out its duration, which is a sophisticated measure of the maturity of the bonds it holds. Funds whose bonds have a long duration of, say, more than five years are best bought by individuals who don't mind the ups and downs. Because changes in bond prices will affect the value of your portfolio, it is important to look at a fund's total return and not just its current yield. - If it is income you are after, don't forget that interest on Treasury bonds is not taxed by cities or states. That also holds true for most municipal bonds in your home state. Don't trust a fund's name alone: A Treasury fund may also own taxable government obligations, such as mortgage-backed bonds guaranteed by the Government National Mortgage Association (GNMA). Don't forget to shop for the fund that charges the least for running your money. Be leery of a Treasury bond fund charging annual expenses of more than 0.78%, the average for T-bond funds tracked by the Morningstar fund-rating service. You, and not the money manager, should be the one making a mint with Treasuries.