What are fixed income mutual funds?


Quick Answer

A fixed-income fund provides periodic payments to holders and the eventual return of principal at maturity, reports Investopedia. As opposed to variable income securities, where payments change depending on factors such as short-term interest rates, the payments of fixed-income funds are consistent and known before purchase.

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Full Answer

When referring to investment funds, the terms "fixed-income," "bond," and "income" are synonymous, says Investopedia. Such funds invest primarily in corporate and government debt. While these funds may appreciate in value, the main goal of these funds is to provide a steady income to investors.

Although such funds tend to pay higher dividends than deposit or money market investments, they are not risk-free, according to Investopedia. There are many types of fixed-income funds, and the risk of each varies according to its principal type of investment. For example, a fixed-income fund that mainly invests in junk bonds is much riskier than more stable funds that invest in government bonds. All fixed-income funds are also affected by long-term interest rates, and if such rates rise considerably, the bonds decrease in value. However, in general, because of the stability of such funds compared to other types of funds, such as equity funds and money market funds, investors tend to be the more conservative type, such as corporate entities or retirees.

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