Things to know before investing in fixed income mutual funds

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An investment option that is popular among new investors is the fixed income mutual fund. It is a type of investment fund that primarily invests in assets generating fixed returns, such as government bonds, corporate bonds, and other debt instruments. Fixed income mutual funds are preferred by investors seeking a combination of regular inflow of funds, lower risk, and reasonable return potential.

However, there are some things to know before investing in fixed income funds, such as their investment targets, risk profiles, and expected returns.

  • Table of contents
  1. The different types of fixed income funds
  2. Key features of fixed income mutual funds
  3. FAQ

The different types of fixed income funds

Fixed income funds can broadly be categorised into government bond funds, corporate bond funds. Government bond funds invest in securities issued by the government, known for their relative stability. Corporate bond funds, on the other hand, invest in debt instruments issued by corporations, offering potentially reasonable returns but with increased risk.

Key features of fixed income mutual funds

Relative stability: Fixed income mutual funds are often seen as a relatively stable option in the world of investing. They provide a relatively more predictable income stream, making them particularly suitable to risk-averse investors or those nearing retirement. The relative stability comes from their investment in bonds and other debt instruments, which typically offer fixed returns experience.

Moderate Growth potential: Fixed income funds aim to offer investors a blend of regular interest income and the potential for moderate capital appreciation. The interest income is generated from the bonds and other debt instruments in which these funds invest. While these returns are typically lower than those offered equity funds, they are also generally more consistent. The potential for capital appreciation, although not as much as in equity funds, does exist, particularly in a falling interest rate environment where the value of existing bonds increases.

Risk: While fixed income funds are considered relatively stable than equity funds, they are not without risks. Interest rate risk, credit risk, and inflation risk are some of the risks to consider. When interest rates rise, bond prices generally fall, affecting the fund's performance. Credit risk involves the possibility of a bond issuer defaulting on payment. Inflation risk is the danger of inflation eroding the purchasing power of the returns.

Liquidity: Liquidity is another key aspect of fixed income mutual funds. These funds allow investors to redeem their units at any time, providing ready access to cash when needed. This feature is particularly invaluable during times of financial uncertainty or in emergency situations.

Diversification: Fixed income funds offer the benefit of diversification. By investing across a range of bonds and debt instruments, these funds spread out risk. This diversification can include different types of bonds (like government, municipal, or corporate bonds) and bonds with varying maturities and credit qualities. This spread helps minimise the impact of any single bond's poor performance on the overall portfolio, making these funds a suitable investment choice for those looking to mitigate impact on the invested capital.

SIP mutual fund option: The SIP option in mutual funds, including fixed income types, is a strategic way to invest. It allows investors to invest a predetermined amount at regular intervals (e.g., monthly or quarterly). This method of investing helps in averaging the cost of investment over time and reduces the impact of market volatility. It's particularly beneficial for fixed income funds, as it allows investors to build a significant investment over time without the pressure of timing the market. SIPs also encourage a disciplined investment approach, which is crucial for long-term financial planning.


Fixed income mutual funds present a suitable investment option for those seeking a balance of relative stability, regular income, and moderate growth potential. They also offer the benefits of liquidity, diversification, and the option to invest through SIPs. However, it is essential to be aware of the inherent risks such as interest rate changes and credit risk. Understanding these features as well as the risks is key to making an informed investment decision.


What are fixed income mutual funds?
Fixed income mutual funds are investment funds that primarily invest in assets like government and corporate bonds, offering regular income and moderate growth.

Are there any risks associated with investing in fixed income funds?
Although relatively stable, some risks associated with these funds include interest rate risk, credit risk, and inflation risk, which can impact the performance and returns.

How does SIP work with fixed income mutual funds?
SIP in fixed income funds allows investors to invest a fixed amount regularly, offering a disciplined and cost-effective way to build wealth over time.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
This document should not be treated as endorsement of the views/opinions or as investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.