.svg)
What is a fixed income fund?
Fixed income funds invest their assets in fixed income instruments, such as various types of bonds. Their return is determined by the performance of the bond and credit risk markets. A regular interest is paid on fixed income investments, which makes it easier to forecast their expected return. The minimum subscription is 10 euros.
Fixed income investments often generate a good return when equity prices are falling, and vice versa. It’s a good idea to invest some of your money in equities and some in fixed income products. Fixed income funds diversify their investments across the bonds of different issuers and countries. They also provide time diversification in their investments, which means they buy bonds with varying maturities and at different times.
The bonds’ issuers can be governments, municipalities and other public-sector entities, as well as financial institutions and private companies. Each fund’s selection criteria for its investments, which is called its investment policy, is outlined in the key investor information document and the fund’s rules.
Fixed income funds can be divided into short-term, medium-term and long-term funds.
- Short-term fixed income funds hold bonds with an average maturity of a maximum of one year. They invest in bonds issued by banks, private companies, governments and municipalities as well as in other fixed income instruments. Nordea Moderate Yield Fund is an example of a short-term fixed income fund.
- Long-term fixed income funds invest in bonds that mostly have an average maturity of more than one year. They may invest in government bonds, corporate bonds or both.
Nordea Euro Bond Fund, which invests in government bonds, and Nordea Corporate Bond, which invests in corporate bonds, are examples of long-term fixed income funds.
Corporate bond funds
Corporate bond funds are typically divided into two classes:
- Investment grade corporate bond funds. These invest in bonds issued by companies with an investment grade credit rating. The key risk involved in such funds is the credit risk, which is dependent on changes in the ability of the bond issuers to repay their debts. Nordea Corporate Bond Fund is an example of an investment grade bond fund.
- High yield corporate bond funds. These invest in bonds issued by companies with a low credit rating, which is also called a ‘high yield rating’. They are characterised by higher risk and expected return. International High Yield Bond HB is an example of this type of fund.
