Fixed Income Funds

Fixed income funds or bond funds are a type of mutual fund that invest in bonds and other fixed income investments. These funds are for more conservative traders.

What are Bonds

Bonds are the primary investment of fixed income funds. They are negotiable IOUs or debt securities, issued by a corporation, government or government agency.

When you buy a bond the bond issuer agrees to

1. Repay the fare market value of the bond at maturity date.

2. Make interest payments during the term.

The biggest misconception about bond funds is that they carry no risk. They do in fact carry risk in 3 ways.

1. Credit Risk. The bonds owned by a fund my default, as in not pay it back. This risk is lowered if the bond issuer is a government agency.

2. Prepayment Risk. The bond issuer may pay the bond back in advanced when interest rates have declined, which could lower returns.

3. Bonds go up and down. It still is possible to sell a bond for less then you bought it if the price falls.