Consider this – You want to build a retirement corpus, but have only 10 to 15 years before you retire. In such a case, you would have to invest in a highly risky portfolio comprising mainly equity funds. But doing so can put you at risk of incurring heavy losses. Thankfully, there are stable options that can help you balance out your portfolio without significantly affecting the returns – fixed income funds.

Of course, this is only one scenario where these funds present a suitable investment opportunity. Let’s understand how these funds work and why they’re a must for your portfolio.                                                                           

How do fixed-income funds work?

As the name itself suggests, these funds provide a steady income stream at regular intervals – annual, quarterly, monthly, etc. The rate of return on these funds is fixed, and the interest gets accumulated over a pre-decided tenure. Fixed funds invest a significant portion of their portfolio in securities such as debt funds, government and corporate bonds, debentures, Exchange-Traded Funds (ETFs), and other money market instruments.

Additional Read – Top 5 Reasons To Invest In Money Market Funds

Benefits of investing in funds offering fixed income

• Lower market risk

For investors who are risk-averse, investing for the short run, or nearing retirement age, these mutual funds are an ideal option because they promise stable returns. Unlike equity funds, these funds are insensitive to macroeconomic risks such as geopolitical issues or economic slumps. Not only that but they also help you preserve the absolute value of your principal investment.

But even if you prefer equity markets, it is recommended that you dedicate a portion of your portfolio towards stable income funds as they can offset losses during market downturns. 

Steady source of income

In light of tough financial times, this is one major reason to start a monthly fixed income plan. By investing in fixed income investments, you will receive a fixed sum of money as income at periodic intervals in the form of coupon payments. Both the amount and the interval will be known to you in advance, making it easier to plan your finances.

High liquidity

Another major benefit of investing in fixed fund investments is that they are highly convenient. You can easily access them. Since there is no mandatory tenure for which you need to commit yourself to investing in these funds, you can withdraw or sell them off any time you wish. However, charges such as exit load may be charged upon withdrawal.

Additional Read – Comparative Analysis of Debt Funds Vs Fixed Deposits

Before Closing

If you are a conservative investor who wishes to avoid market fluctuations and earn stable returns or are looking to balance out your equity-focused portfolio to offset losses, consider investing in funds that offer fixed income. The portion of the portfolio you dedicate towards these funds will entirely depend upon your risk profile. Need help with making the right decision? Let Tata Capital’s Moneyfy app help you out! Based on your unique investment goals, the app will offer you personalized recommendations. You can compare between funds and make an informed investment choice. So, download Moneyfy today!

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