Fixed income funds – all you need to know

Balance is the key to almost everything in life. For every Sunday binge, you must follow up with a healthy diet and workout. For every shopping spree, you must save later to make sure you do not upset your budget. And, for all the risk you add to your investment portfolio in search of high returns, you can also add fixed income funds for maintaining stability.

Let’s know more about fixed income funds and how they can be used effectively.

What are fixed income funds? 

A fixed income fund is a type of investment that can offer steady or stable returns. These funds are considered to be relatively stable and can be used to lower investment risks. They can deliver consistent interest and dividends irrespective of the market situation.

Fixed income funds can be categorised into multiple types. Let’s find out more about them.

Types of fixed income funds

o   Bond Exchange Traded Funds (ETFs):

 ETFs are a basket of securities that are traded directly on the stock market. They offer the ideal blend of mutual funds and stocks. There are a number of ETFs, out of which bond ETFs are fixed income funds that invest in different types of debt securities. These passive funds carry low to moderate risk and can offer a steady income.

o   Debt mutual funds: 

This type of mutual fund invests the majority of its assets in fixed income securities like government securities, certificates of deposits, corporate bonds, etc. Debt mutual funds have 16 classifications as per the Securities and Exchange Board of India, including money market funds, gilt funds, short-duration funds, ultra-short-duration funds, etc.

o   Bond Fund of Funds (FOFs): 

FOFs are mutual funds that invest in other funds instead of stocks or bonds. Bond FOFs are open-ended target maturity funds of funds that invest in the bonds of other public sector companies. They carry moderate risk and can offer exposure to multiple companies with a single investment.

Benefits of fixed income funds

o   Low risk: 

Fixed income funds are low-risk investments that help in diversification and mitigating risk.

o   Source of income: 

Fixed income funds offer regular income in the form of interest or dividends that can be used for your varied financial goals.

o   Capital preservation: 

These funds can be ideal for capital preservation. With guaranteed returns, they help you avoid risk, protect your capital, and maintain your wealth.

How to invest in fixed income funds?

You can invest in fixed income funds directly through an asset management company. You can make a lump sum investment or start an SIP (Systematic Investment Plan) that lets you invest small amounts periodically. 

Conclusion

Fixed income funds are suitable for low to moderate risk appetites. They are also ideal for diversification. However, before you go ahead and invest in them, make sure you understand the different types and pick the one most aligned with your needs. An SIP or lumpsum calculator can also help you make a better choice in regard to your investment.

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