Friday, July 12

Basic Facts About Fixed Income Mutual Funds

If you have just started your career and begun thinking about investment plans, then you are certainly on the right track. But at the same time, you have also come to realize that it is not easy to make investments for an average Indian. After all, you have a limited salary, and most of it goes to meet your daily expenditure, or the rest is spent on paying up your loans. However, this does not mean that all your hopes of investment are lost for good. There are still some investment instruments you can consider within your limited budget and still get good returns.

Fixed Income Mutual Funds

Fixed income mutual funds are an investment instrument that allows you to diversify your portfolio. As you can guess by the name, these funds are useful in generating income. But what exactly are fixed income mutual funds?

Also known as bond funds, these mutual funds are simply those that invest in fixed income securities, such as municipal bonds, corporate bonds, US Treasuries, etc. Let’s offer you a few crucial details about fixed income mutual funds.

Basic types of fixed income mutual funds

These funds come in multiple styles and shapes. The five basic types of fixed income funds are as follows:

Long-term funds: These focus on corporate debt papers and government securities. True to their name, they have a long maturity period of five to ten years.

Short-term funds: These funds invest in different short-term instruments, such as certificates of deposit, treasury bills, short-term corporate papers, and so on. The best part of these funds is that the net asset value is not affected much by market changes.

Liquid-plus funds: Also called ultra-short-term funds, these have a maturity period that is even less than a year. As you can guess, you cannot earn too much with such ultra-short-term funds. They also have a specific exit load in most cases.

Floating rate funds: As the term suggests, floating rate debt funds do not have a fixed interest rate. Their interest rate is dependent on factors like the bank rate or the MCLR. Typically, these funds have a short maturity period, though some have a longer maturity tenure.

Top Three benefits of fixed income mutual funds

Given below are the top benefits of fixed income mutual funds:

  1. Fixed income mutual funds generate returns through bond investments and other fixed-income securities. It means that the funds purchase the bonds and get interest income on their investments.
  2. Bond funds can offer higher returns on investments.
  3. The yield of most of these instruments is higher than the usual bank fixed deposit interest rates with the same maturities. Thus, the trailing returns of various bond funds are higher than bank interests.

So, now you have the basic information needed to decide whether to invest in fixed income funds or not. It’s time to look into some offer documents because that will help you more in making a decision!