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How Do Fixed Income Funds Work?

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By Author: Swarali Chavan
Total Articles: 36
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For an individual with a limited salary and are utilized for handling their personal lives. With the rise in the cost of living and inflation, it is a tough task for an individual to choose the right investment which will be profitable for them and help them build wealth opportunities for the future. Through a fixed income fund, an individual can get an additional amount of money as an addition to their monthly salary. This will be possible through fixed income funds. Through fixed income funds, the mutual funds will be able to provide returns at fixed intervals – monthly, quarterly or half yearly.

The income that is earned though fixed income funds are determined as per a particular rate and they may not be a fixed amount. It will heavily depend on the performance of the fund as well. A mutual fund aims to pool in money through different investors like retail investors, corporate investors, groups etc. The investment of fixed income funds is done with different investment opportunities. The collection of different funds in one basket will form a portfolio. A basket of investments mean that the money provided by the investors is invested in a group of investments. Fixed income funds are classified as debt funds, exchange traded funds and money market funds.

How do fixed income funds work?
Fixed income funds are generally mutual funds that own fixed income funds which are simply mutual funds that will own fixed income fixed income securities. Fixed income mutual funds will focus on getting more income in to the fund on a regular basis through the interest that a fund will earn. These funds are the close-ended fund type, and they will be open for subscription only during their New Fund Offer (NFO) period. Fixed income funds have a specified tenure and a fixed maturity date. The funds which are raised through these are locked within the tenure that will help in efficient management of the corpus. The fund mangers will be able to select the assets that the best growth potential. They have a lot of time for creating and building a suitable long-term investment strategy.

Features of fixed income funds:

1. They are focused on providing a regular fixed income to the fund holder.
2. They can also serve as a regular source of return for retired individuals in addition to their pensions and investors that have a low risk appetite.
3. Fixed income funds are managed by a team of professional fund managers who will go through the portfolio.
4. Maintain stable returns in spite of market disturbances or changes in the economic situations.
5. ETFs are more profitable since they are traded in the stock market.
6. An individual can avail the benefit of indexation and reduced tax amount on returns.

Author bio: Swarali Chavan is a finance professor who loves study about market investment instruments. She has written on fixed income funds. Through this article, she has provided detailed information on how do fixed income funds work.

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