Looking for an income from your investment? Consider fixed-interest unit trusts

Fsp Invest, 11 Feb. 2014

Tags: unit trusts, unit trust fund, funds, fixed-interest, fixed-interest funds, fixed-interest unit trusts, bonds, bond funds, money market, money market funds, income, income funds, types of fixed-interest funds, income, capital growth, investing, investor,

Investing in unit trusts isn’t all about investing to gain from the performance of the stock market. You can also use unit trusts to gain from the fixed-interest market. This include bonds and money market investments. Let’s take a closer look at how these different unit trusts work…

If you want an income from your investments, then fixed-interest funds could be perfect for you, the team of experts at The South African Investor explain…

Fixed-interest funds focus on bonds, money market investments and other income earnings securities. Let’s take a closer look at the three main types of funds available…

#1: Bonds funds

A fund manager will actively manage a bond fund. The fund manager will change the investments over time to reflect his expectations of interest rate trends.

When you invest in these funds, there is limited potential for capital growth. But you can achieve a regular and a high level of income from them.

The benchmark for these funds is usually the SA Bond Index.

#2: Income funds

Unit trusts like this invest in bonds, fixed deposits and other interest-earning securities that have a fixed maturity rate. They tend to either have a predetermined cash flow profile or a performance linked to a specific benchmark yield.

Income funds don’t invest in equities. These funds usually have low volatility. They’re characterised by a regular and high level of income.

#3: Money market funds

The aim of these funds is to maximise interest income, preserve the fund’s capital and provide immediate liquidity.

These funds achieve this by investing in money market instruments with a maturity of less than a year. But the average maturity of the underlying assets can’t be more than 90 days.

These funds are short-term, highly liquid vehicles.

So there you have it, how the three main different types of fixed-interest unit trusts work.

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