At WiseGEEK, we're committed to delivering accurate, trustworthy information. Our expert-authored content is rigorously fact-checked and sourced from credible authorities. Discover how we uphold the highest standards in providing you with reliable knowledge.
A fixed income fund is a mutual fund strategy that makes it possible for investors to generate an ongoing income from the investment. All securities selected for inclusion in the fund pay some sort of regular interest payment or dividend, resulting in residual income for the fund’s investors. The focus with a fixed income fund is not on the capital appreciation of the securities per se, but on their ability to consistently produce income.
A number of different types of investments may be included in a fixed income fund. One of the more common investments that is secured for inclusion in this kind of managed fund is the corporate bond. It is not unusual for bonds issued by companies to provide monthly or quarterly interest payments to investors, making the investment an ideal fit for a mutual fund geared toward generating a steady flow of income for investors.
Other types of bonds are also often included as part of the holdings of a fixed income fund. Municipal bonds that are structured to offer interest payments at fixed intervals over time also work with well the basic strategy for this type of investment. Bonds issued by a national or federal governments may also provide a steady flow of return, making them a good fit for a fixed income fund. With all types of bond issues, administrators of the fund track maturity dates and arrange with investors to either return the original investment as each bond matures, or reinvest those funds into a new bond issue that will generate similar levels of income.
In addition to the consistent stream of income, a fixed income fund also offers the benefit of being a relatively safe investment vehicle. While the returns will not be as spectacular as with stock options carrying a higher degree of volatility, this type of fund is an excellent choice for a conservative investor who is more interested in creating ongoing financial security over the long-term. The steady returns can easily be used for whatever purpose the investor has in mind, including managing day to day living expenses, paying for a child’s education, or reinvesting the returns in some other type of safe investment vehicle. At the same time, an investor who is willing to assume greater risk in order to generate higher returns in a shorter period of time would probably find the structure of a fixed income fund to be incompatible with his or her financial goals.