Fixed Income Mutual Funds Explained:
Safe & Steady Way to Grow Your Money

Many people look for steady returns from investments in the face of market volatility and economic uncertainty, as living expenditures keep rising.  One such investment choice that provides consistency and possible profits is fixed-income mutual funds.  For a quick overview of this mutual fund, continue reading.

What is a Fixed Income Mutual Fund?

An investment route that primarily makes investments in assets such as corporate bonds, government securities, debentures, and other money market instruments is a fixed-income mutual fund.  Through consistent interest payments from the underlying securities maintained in the portfolio, these funds seek to provide investors with income.  They are frequently called debt funds.

Features and Benefits of Fixed Income Mutual Funds?

Let's look at some of the advantages of fixed-income mutual funds in India.

• Consistent Returns

Compared to equity funds, which can be extremely volatile in response to market fluctuations, these mutual funds are less risky.  This consistency lowers total risk by assisting in the construction of a diverse investment portfolio.

• Systematic Investments

When carefully examined, fixed-income mutual fund schemes can help achieve long-term financial objectives by offering more consistent and predictable returns than equity funds.

• Adaptability

These funds give you flexibility by letting you move between them.  It spreads investment risk over time by allowing both lump sum investments and recurring transfers into other funds, unlike fixed deposits.

• No Lock-in Period

There is no lock-in term associated with these funds, so you can take your money out whenever you choose.  Nevertheless, exit load and other costs could apply.

Which Factors to Consider Before Investing in Fixed Income Mutual Funds?

Before investing in fixed-income mutual funds, you must consider the following points: 

• Financial Goals

Decide if you would like better returns than a standard savings account or extra income.  Select the mutual fund with fixed income that best suits your financial goals and your risk appetite.

• Past Performance

Examine the mutual fund's performance over the previous five to ten years to determine how consistent it has been.  Examine the fund's past performance in relation to its peers and benchmark.

• Investment Duration

The maturity durations of these funds vary from a few days to several years.  Think on your expected return and investment schedule.

Risks

In spite of having advantages such as stable returns, less volatility, a fixed income mutual fund still has risks like interest rate, credit, and liquidity risks. Be aware of these before investing.

Costs

There are a few costs involved in investing in mutual funds. Check the expenses ratio and exit load that affect your returns. The lower the expenses/costs, the higher your returns would be.

Let’s understand the categories of Fixed Income Mutual Funds as per SEBI:

Source: AMFI

https://www.amfiindia.com/investor-corner/knowledge-center/SEBI-categorization-of-mutual-fund-schemes.html

For investors who are risk-averse, seeking security, consistent income, and modest growth potential, fixed-income mutual funds are a desirable choice.  Before choosing to invest, it is imperative to thoroughly weigh the points mentioned above.