For regular income, diversification and liquidity, fixed-income funds fit the bill. These mutual funds typically invest in mortgages, bonds or both. Primary investment targets for funds in this category include companies of various sizes, government entities and municipalities. Fixed income mutual funds are available through a number of investment firms and offer a way to earn current income while simultaneously managing investment risks.
Understand Fixed Income Fund Categories
Think of fixed income mutual funds as falling into three different categories. With your investment objectives in mind, determine the categories that are best suited to your investment needs.
Know that the first category consists of investments that are considered liquid. Such investments may include, but are not limited to, municipal and taxable money-market funds.
Realize that the second category includes investments that are fairly stable and capable of offering moderate income and some capital preservation. These investments may include higher-quality municipal or corporate bonds and long-term Treasury securities.
Understand that the last category consists of higher-yield investments. These funds have a higher level of volatility, as well as the potential for higher returns. Assets are invested for two or more years.
Determine the amount you want to invest. With some funds, you must make a sizeable lump-sum investment; others will allow you to invest smaller amounts on a monthly basis.
Choosing a Fund
Understand how fixed income funds work. Essentially, the bond or debt instrument issuer agrees to repay the principal on a particular date. The issuer then goes on to make interest payments over the life of the security.
Understand that bonds are generally less risky and volatile, over the short term, than stocks. However, by choosing to invest in bond funds, you do incur interest rate and default risks.
Research and compare fixed income mutual funds using online investment research sites, like MorningStar.com and LipperWeb.com. Pay attention to fund ratings and rankings.
Request prospectuses for the fixed income funds that fit well with your objectives. Review them, paying special attention to objectives, investment strategies and fees.
Contact your broker or financial adviser and review the fixed income funds you are considering. Purchase shares of the income funds of your choice.
- As you begin to invest in fixed income mutual funds, keep in mind that diversification doesn't guarantee profit or provide ironclad protection from loss. However, less diversified funds are typically more volatile than others.
No comments:
Post a Comment