Fixed income funds

A fixed income fund invests in bonds. These may include government bonds, corporate bonds, mortgage bonds, municipal bonds, zero-coupon bonds, or high-yield bonds.

1. Fund or a direct investment – what is the difference?

A fixed income fund may specialize in a particular bond category or mix various bonds within its portfolio. The benefit of fixed income funds over a direct investment lies in their broad diversification. With a fixed income fund, an investor not only invests in a single security.

2. What are the risks of bonds?

Bonds are so-called debt securities. This means that the buyer of a bond effectively provides the seller with a loan. The buyer becomes the creditor, and the seller the debtor. As the bond purchaser wishes to get their money back at the end of the term, particular attention is paid to the creditworthiness/solvency (credit rating) of the bond issuer. Nevertheless, an investor cannot be sure that a bond will be redeemed in full, or whether it will be redeemed at all. Investing in a single bond therefore entails a risk. Broad diversification across several securities therefore makes sense.