Debt funds: An Overview of Fixed Income Funds

Mutual funds are known to invest in a diversified portfolio of securities for income generation. These are a pool of professionally managed funds that invest across various asset classes and fixed income securities. Depending on the nature of the scheme, its asset allocation strategy and its risk profile, a mutual fund may invest in equity, company stocks, real estate, debentures, company fixed deposits, commercial papers etc. Mutual fund investors are allotted units in quantum with the investment amount and depending on the fund’s existing NAV (net asset value). The performance of a mutual fund scheme is known to depend on the performance of its underlying assets and the various sectors and industries in which it invests.

Market regulator SEBI has further categorized mutual funds based on the fund’s various unique attributes like fund size, asset allocation strategy, risk profile, etc. Some of the major mutual fund categories include equity, debt, gold, ETF, hybrid, ELSS etc. Among these, fixed income funds that fall under debt category are quite popular among investors who carry a low risk appetite. These are debt schemes that invest in fixed income securities which offer regular income. Although fixed income bonds do not offer higher capital appreciation, they are known to offer stable returns with minimum investment risk.

Fixed income funds are available in SIP and lump sum investment option

There are multiple ways to invest in fixed income funds. Investors who have surplus cash parked, they can opt to make a one time lump sum investment towards fixed income funds. A lump sum investment is generally made right at the beginning of the investment cycle. Investors, depending on their income needs can invest in fixed income bonds. On the other hand, if you wish to inculcate the discipline of regular investing then you can start a monthly SIP in fixed income funds. A Systematic Investment Plan is an easy and hassle free way of investing in fixed income funds. If you are new to investing and do not know much about mutual fund investing, you can start a monthly SIP to avoid your entire investment amount from getting exposed to credit risk and interest rate risk.

All an investor has to do is complete the pre-investment formalities and become KYC compliant. After this, every month on a fixed date a predetermined amount is debited from the investor’s savings account and electronically transferred to the scheme. One good thing about SIP investing is that investors can start investing in fixed income funds with an amount as low as Rs. 500 per month. However, investors should get in touch with the fund house to clarify on the minimum investment amount before starting a SIP in fixed income funds.

Choose between direct and regular plan

Like any other mutual fund scheme, a fixed income fund is available in direct and regular plan. A regular plan can be brought from a broker or a mutual fund agent. Investors need not visit the fund house owning the fixed income fund to buy a regular plan. On the other hand, a direct plan can be brought from the fund house owning that particular scheme. One can buy a direct plan by personally visiting the fund house or logging on to the fund’s website. However, since there is a third party involved in selling of the regular plan, the expense ratio of owning a regular plan is much higher than the direct plan.

Investors who are new to mutual fund investing must consult a financial advisor before investing in fixed income funds.

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