Fixed-income funds

Is a fund where investors' units and capital are invested in long-term fixed-income securities, also called bonds. A bond is proof that you have borrowed money, it indicates what interest rate there is on the loan and how long the loan period is. Fixed-income funds can invest their capital in fixed-income securities regardless of the fixed interest period.

A fixed-income fund is considered to have a low to medium risk and thus a corresponding return. The longer the fixed interest period the fund can invest in, the higher the interest rate risk. Risk and expected return are governed by two factors. These are the length of the loan and how big the risk is that you will not get the loan repaid.

The fixed-income funds with the lowest risk are called money market funds and usually lend to secure companies, municipalities, or states with a loan period of less than a year.

The fixed-income funds that have the highest risk are called high-yield bonds (junk bonds), which lend to companies that have a greater chance of not repaying the money. Thus also a higher expected return on such loans and funds.

By saving in money market funds and fixed-income funds, you can expect to get a slightly higher return over time than what you get in a bank account.

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