The fixed income fund is a type of mutual fund that many people prefer to put their money in. This type of fund is drastically different from funds that try to provide capital appreciation for the investors. Here are the basics of the fixed income fund and what it could provide to you as an investor.

Fixed Income Fund

With the fixed income fund, you will be buying into an investment that is striving to provide a regular income for you. The fund managers of fixed income funds will invest in securities that pay a regular interest payment or dividend to the portfolio. In this way, they can successfully create a residual source of income for everyone in the mutual fund. This type of fund pays little attention to capital appreciation of the assets in the fund. Instead, they are only focusing on how they can increase the amount of residual income for the investors.

Investments

Fixed income funds can invest in a variety of different securities in order to provide income for the investors. One of the most popular forms of investment for this type of fund is the corporate bond. A corporate bond is a debt instrument that is issued by a company. The company needs to raise money and they issue these bonds to individual investors. The company borrows the money from the investors and then provides them with a monthly interest payment over the life of the bond. Once the bond matures, the investor will get back to their initial investment as well. With a mutual fund, a fund manager purchases a variety of corporate bonds. They will then receive the monthly interest payments and distribute them equally to all of the investors.

Fixed income funds will also get involved with government bonds as well. Many times, they will buy Treasury securities such as the T-bill. This provides a high-level of safety for the fund as well as a regular interest payment.

Many fixed income funds will also invest in other money market investments. For example, they might decide to invest in commercial paper which also provides regular interest payments.

Performance

The performance of this type of fund is not amount to much when it comes to capital appreciation. However, you can expect to receive a solid yield from this type of mutual fund. It is not uncommon to bring in 4 percent to 6 percent annually in yield. If you have a substantial amount of money to invest, this can provide you with a nice source of residual income.

Safety

Many investors choose this type of mutual fund because of the safety that is involved. There is little risk in losing your entire investment with this type of fund. Most corporate bonds are very safe and government bonds are even safer than that. If a company were to file for bankruptcy, the mutual fund would have a good chance of getting back their initial investment because they are considered to be a creditor. This means that as an investor, you can invest your money with confidence.

blog comments powered by Disqus
Scottrade