Fixed Income Mutual Funds

Fixed income mutual funds aim to generate returns through bonds and other fixed-income securities. Investors earn based on bond interest, similar to Fixed Deposits.
Fixed-income mutual funds
3 min

A fixed income mutual fund, also called an income or debt fund, invests in fixed-income securities like government bonds, corporate bonds, debentures, and money market instruments to generate returns for investors. One of the many advantages of mutual funds is the abundance of options available. There are multiple types of funds, each with its own set of advantages and risks. Among the most popular types are fixed-income mutual funds. They are a popular choice among investors seeking stable returns and capital preservation. Here is everything you need to know about this investment option.

What are fixed-income funds?

Fixed-income funds or debt funds are a type of mutual fund that invests primarily in a basket of different debt instruments. Since debt instruments provide a fixed income throughout their tenure, these mutual funds are often referred to as fixed-income funds. The primary objective of fixed-income funds is to preserve the capital of investors and provide them with a regular income.

Corporate bonds, government bonds, municipal bonds, Treasury Bills (T-Bills), Commercial Paper (CP), Certificates of Deposit (CDs) and repurchase agreements are some of the common debt instruments that fixed-income funds invest in.

Features and advantages of fixed-income mutual funds

Fixed-income mutual funds offer a range of features and advantages that make them attractive investment options for many investors. Here is a closer look at a few of them.

Stable income stream

The regular interest payments from the underlying debt securities in the funds provide investors with a stable and predictable income stream. This makes them particularly beneficial for investors seeking a steady income to meet their financial needs or goals.


Fixed-income mutual funds typically invest in multiple debt securities with different credit ratings and maturities. This diversifies the portfolio and spreads risk across different assets, reducing the negative impact of adverse events.

Professional management

Fixed-income funds are managed by professional fund managers with decades of experience navigating the financial markets. The fund managers select the appropriate securities for the fund’s portfolio, actively monitor the markets and adjust the holdings according to market conditions.

Capital preservation

Fixed-income funds prioritise capital preservation over wealth creation. Although they may not offer the same level of capital appreciation as equity funds, they generate a steady stream of income for investors.


Investors can freely buy and redeem units of fixed-income mutual funds. The high level of liquidity allows investors to access their investment capital as and when they need to cover emergency expenses.

Different types of fixed-income funds

Fixed-income mutual funds come in various types, each with its own unique characteristics and investment objectives. Some of the most common types of fixed-income mutual fund schemes that are available in India include the following.

Long-term debt funds

Long-term debt funds invest in corporate and government debt securities with maturities ranging from three to ten years. They are ideal for investors with a long-term investment horizon.

Short-term debt funds

Short-term debt funds invest in a range of different debt securities with maturities ranging from one to three years, making them ideal investment options for investors looking for safe, short-term investment opportunities.

Floating rate funds

Floating rate funds invest in debt securities that offer a floating rate of interest, often linked to the Mumbai Interbank Offer Rate (MIBOR). The primary aim of these funds is to minimise the volatility in the fund when interest rates change.

Credit opportunity funds

Credit opportunity funds invest in corporate bonds that have less-than-ideal credit ratings. These bonds usually offer higher interest rates to compensate for their low ratings. These funds are ideal for investors with high-risk tolerance since they carry a higher risk of default.

Gilt funds

Gilt funds invest exclusively in government securities with both short-term and long-term maturities. Since these funds invest in central and state government-issued securities, . However, they are very prone to interest rate risk, especially if their tenure is long.

Liquid funds

Liquid funds invest in debt instruments with maturities of up to 91 days. These funds have very high levels of liquidity and can be redeemed quickly within one day.

Dynamic bond funds

Dynamic bond funds invest in debt securities with different maturities. These funds are actively managed by fund managers who dynamically adjust the fund’s portfolio depending on the market conditions and their view on interest rate movements.

Are fixed-income funds better than bank FDs?

Both bank fixed deposits and fixed-income funds are attractive investment options, each with its own set of characteristics.

Cooperative & commercial bank FDs, for instance, are relatively safe and have deposit guarantees to the tune of Rs. 5 lakh by DIGCC as per ERBI. However, these mutual funds’ returns usually tend to be low, especially during low-interest-rate environments. This makes them suitable for conservative investors seeking capital preservation

Fixed-income mutual funds, on the other hand, provide investors with the opportunity to earn higher returns compared to traditional bank FDs, especially in the long term. This makes them suitable for investors who are willing to take on some level of risk in exchange for the potential for higher returns.

However, the choice between bank FDs and fixed-income mutual funds ultimately depends on the investor's risk tolerance, investment objectives and time horizon.


Fixed-income mutual funds are a great moderate-risk investment option for investors looking for a stable source of income. These funds are actively managed by professionals with decades of experience, making them suitable for both beginner and experienced investors alike.

The Bajaj Finserv Mutual Fund Platform allows you to diversify your portfolio with over 1,000+ mutual fund schemes available to choose from.

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Frequently asked questions

What is a fixed-income mutual fund?
A fixed-income mutual funds are type of mutual fund that invests primarily in a range of different debt securities. The primary objective of such are funds is to provide regular income to investors while simultaneously preserving their capital.
Is it good to invest in a fixed-income fund?
Yes. Investing in a fixed-income fund can be beneficial if you are looking for stable returns and are focused on capital preservation. It can also help you diversify your portfolio and reduce its overall investment risk.
Are fixed-income funds risky?
Fixed-income mutual funds are generally considered less risky compared to equity funds. That said, they still carry some level of risk. Some of the risks that these funds are prone to include interest rate risk, credit risk and inflation risk.
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Bajaj Finance Limited (“BFL”) is an NBFC offering loans, deposits and third-party wealth management products.

The information contained in this article is for general informational purposes only and does not constitute any financial advice. The content herein has been prepared by BFL on the basis of publicly available information, internal sources and other third-party sources believed to be reliable. However, BFL cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. 

This information should not be relied upon as the sole basis for any investment decisions. Hence, User is advised to independently exercise diligence by verifying complete information, including by consulting independent financial experts, if any, and the investor shall be the sole owner of the decision taken, if any, about suitability of the same.