Fixed income connotes a type of investment that does not deal with equity. Investments that are classified as such income, obligates the issuer/borrower to make regular payments at a pre-determined schedule.
Another meaning that can be derived from the term ‘fixed income’ is that it relates to a person’s incoming cash flow that does not change with each given period. This may include incomes that are derived from investment instruments such as preferred stocks, bonds or even pensions that assure a fixed income. When retirees and pensioners are dependent on their post-retirement benefits as their only source of income, the term also carry a connotation that these retired people have limited discretionary income.
They are a good way by which one can diversify their investment portfolio. But, much clarity is required to understand what fixed income funds are?
Fixed income funds are a type of mutual funds that invest in municipal bonds, corporate bonds, treasury bills, etc. Fixed income funds come in many styles and shapes. In India, these funds are also referred to as income funds and debt funds.
Funds that are classified as fixed income typically make investments in debt securities which are issued by companies, banks, government or financial institutions. The various types of debt-securities in which a mutual fund invest are known as treasury bills and commercial papers of deposit. The instrument is categorized based on its maturity period. For instance, the debt securities are known as debentures and bonds, if their maturity period is more than one year; subsequently, if the maturity period is less than a year than they are referred to as commercial papers or treasury bills.
The borrower/issuer of these debt securities is obliged to pay the principal along with interest at the time period agreed upon.
These funds have a face value on which the rate of interest is calculated. Usually an investor who wants to invest in this fund is chiefly concerned with the face value, rate of interest, rate of interest payment, maturity value and time period. On an average, these funds are held till maturity unlike other mutual funds that see a lot of attrition.
In order to have long-term financial stability investing in gold funds is also the right thing to do. It is always advisable to have some amount of your liquidity to be invested in this precious metal. Gold has gained a reputation of acting as a hedge against inflation. As the rate of inflation rises, the money that you have will be less valuable. But on the other hand, gold being a rare and precious metal, its value will continue to ascend. That means the investment done in gold funds will never lose its value.