There are different varieties of mutual funds available in the market today that are meant for various types of investors. Choosing the right type of investment can help you plan your wealth in a better way. With the power of income funds, you can have a surplus added to your finances. The following sections offer a complete rundown on income funds with their features, benefits and more.
Income funds are mutual fund schemes that provide regular income by investing in government securities, corporate bonds, certificates of deposits, debentures and other money market instruments.
These are debt funds which, according to SEBI, come with a Macaulay duration of 4 years or more. Fixed Income mutual funds are of two categories:
If you are interested in investing in income funds, you should be aware of some of the key features of this scheme:
Here are some of the major advantages of investing in income mutual funds:
Income funds are managed by fund managers who ensure to provide healthy returns irrespective of the current interest rate regime. So, these funds can generate returns when the interest rates are rising or dropping.
Fund managers use the two following strategies while managing income funds:
Income funds invest in different debt instruments that have reduced interest rate risk. Considering past performances of these funds, they often tend to provide higher returns as compared to bank deposits. They also offer higher flexibility.
Also Read: International Mutual Funds
You can invest in fixed income funds by visiting the branch office of the fund house. You will be required to submit self-attested copies of personal documents for identification and processing.
You can also select an online investment platform for a paperless process. Here are the steps you can follow to invest in income mutual funds online:
Step 1: Open the app or website of the investment platform and create your account.
Step 2: Submit the necessary details and documents to comply with the KYC guidelines.
Step 3: Explore the ‘Mutual Funds’ section and choose a preferable income mutual fund. Make sure that the selected mutual fund is aligned with your financial goals.
Step 4: Confirm your investment by clicking on the ‘Invest’ tab and selecting your mode of payment. You can either go for a lump-sum investment or a systematic investment plan.
Step 5: Approve the account transaction to start your investment journey.
Income mutual funds are debt funds, so they enjoy lower tax rates than equity-based funds.
The types of risks associated with fixed income mutual funds are:
While income funds offer a steady stream of income for the investor, growth funds aim to increase the value of his/her investments over time. The key differences between the two types of mutual funds are:
|Income Funds||Growth Funds|
|Goal||Generate a steady income for the investors||Achieve high levels of growth on investments|
|Returns||Offers fixed and regular payouts to shareholders||Appreciated capital is reinvested into the fund|
|Portfolio||Focused on companies that pay dividends to their shareholders.||Focused on companies who are aiming for expansion and growth|
Fixed-income mutual funds offer a steady stream of income with fewer risks than equity-based funds. Investors who wish to take advantage of money-market instruments can go for fixed incomes funds.
Here are a few points that one should keep in mind before investing:
To make the most out of your mutual fund investment, you need to consider the following vital factors before you make an investment:
Also Read: List Of Best Value Mutual Funds
Income funds invest in debt instruments to provide regular income for investors. Apart from investing in income funds, you can also opt for debt funds on Navi. You can invest in Navi Ultra Short Term Fund or the Navi Liquid Fund, and more. Visit Navi Mutual Fund and start investing with just Rs. 500.
Ans: The short-term capital gains that you earn from investing in income funds are liable to taxation as per your tax slab rate. However, the government will tax your long-term capital gains from income funds at a 20% rate after indexation benefits.
Ans: Income mutual funds are highly suitable for those investors who have a low or moderate risk-bearing capacity and an objective to earn regular income. So, if you are looking to explore low-risk schemes that provide stable returns, you can consider investing in these funds.
Ans: Income funds help in generating regular and steady earnings for investors; they are also comparatively less risky. Growth funds provide capital appreciation by reinvesting the returns and thus have the potential to deliver high growth.
Ans: Yes, similar to other types of mutual funds, you can invest in income funds through a systematic investment plan. Income funds are a type of debt funds that offer superior returns with lesser volatility and risk as compared to equity funds.
Ans: Macaulay duration is the time that you, as an investor, would need to get back the money you invested in a bond in the form of both periodic interest and principal repayment. It is a vital parameter that fund managers use while building a portfolio that is suitable for prevailing market conditions.
Ans: Credit quality is one of the most important factors to judge the returns on income mutual funds. The credit quality or “bond rating“ defines the creditworthiness or bond’s ability to pay back the fund to the investors. Fixed income bonds with high credit ratings are considered low-risk investments. You should check the mutual fund’s portfolio to understand credit risk.
Ans: Investors with the objective of earning a regular income from the debt market can invest in fixed income mutual funds for 1 to 3 years. The ideal entry time is when the interest rates are low, which will ensure high returns during price appreciation.
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Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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