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Fixed-Income Mutual Funds
Context
In recent financial discussions, the nuances of fixed-income mutual funds have garnered attention, especially with the backdrop of potential interest rate changes.
About Fixed-income mutual funds:
- Fixed-income mutual funds can be broadly categorized as open-ended or close-ended.
- Open-ended funds are bought and redeemed directly with the Asset Management Company (AMC)
- Close-ended funds are listed on exchanges for trading.
- Another fundamental concept is accrual, where interest is added to the Net Asset Value (NAV) daily, with market price changes impacting NAV through mark-to-market valuation.
- Categories:
- Liquid Fund: Designed for short-term needs, investing in instruments with maturity up to three months. Primarily earns from accruals, making it suitable for emergency cash-equivalent needs.
- Money Market Fund: Invests in instruments with maturity up to one year, with limited mark-to-market impact. Suitable for short-term investments.
- Banking and PSU Fund: Focuses on instruments issued by banks and PSUs, offering flexibility in portfolio maturity. Ideal for medium-term investment horizons.
- Corporate Bond Fund: Invests in highest credit rating instruments, typically with a portfolio maturity of 3-5 years. Suitable for medium-term investment objectives.
- Dynamic Bond Fund: Allows the fund manager to adjust portfolio maturity based on market conditions. Suited for medium to long-term investment goals.
- Gilt Fund: Invests in government bonds with long maturity, offering exposure to interest rate cycles. Suitable for long-term investment strategies.
- Target Maturity Fund (TMF): Provides a defined maturity date, offering high visibility on returns. Usually maintains high-grade credit quality.
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