Invest in Fixed Income Fund for Long Term

Article Written By: dspblackrock

Fixed income denotes a type of investment that does not deal with equity. Investments that are classified as fixed income, obligates the issuer/borrower to make regular payments at a pre-determined schedule. Another meaning that can be derived from this term 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.

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.

Fixed income funds are mutual funds, as such they are a good way by which one can diversify their investment portfolio. But, much clarity is required to understand what they are.

Fixed income funds invest in fixed income securities such as municipal bonds, corporate bonds, treasury bills, etc. They come in many styles and shapes. In India, they are also referred to as income funds and debt funds.

Typically they make investments in debt securities which are issued by companies, banks, government or financial institutions. The various types of debt-securities are known as treasury bills and commercial papers of deposit. The instrument is categorised 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.

Fixed income funds have a face value on which the rate of interest is calculated. Usually an investor is chiefly concerned with the face value, rate of interest, rate of interest payment, maturity value and time period. On an average, fixed income funds are held till maturity unlike other types 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 will never lose its value.

About the Author

Nisha Varma is an expert on mutual funds in India and Gold Fund investors.

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