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What is Fixed Income Management?

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  • Written By: Jim B.
  • Edited By: Melissa Wiley
  • Last Modified Date: 29 November 2016
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Fixed income management refers to the management of assets that bring an investor regular income, usually in the form of bond interest payments. Bonds, which are the most common form of fixed income instrument, are loans given to institutions by investors in return for regular interest payments and eventual repayment of the loan. An individual can undertake fixed income management on his own or seek out pooled investment funds that are professionally managed, like mutual funds or hedge funds. In any case, the goal in managing fixed income is to balance out risky investments like corporate bonds with safer securities like government-issued bonds.

For most individuals, investing means putting money into the stock market, which entails buying and selling ownership shares of different companies. The drawback with stock investing is that there is no guarantee that the capital invested will be returned, especially because the market is volatile and prone to rapid changes of direction. Investors looking for a safer form of investment that provides regular returns often seek out fixed income instruments like bonds. Good fixed income management can lead to an investor gaining profits while incurring relatively little risk.

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Effective fixed income management requires choosing a variety of securities that balance out risk and reward. Bonds, which provide investors with regular income in the form of interest payments, are the most common types of fixed income instrument. Unfortunately, there are some cases in which the institution offering the bonds fails to repay investors, thus offering some risk to investors.

Bonds offered by governments are generally safe from such defaults, because governments usually back up the bonds with the resources inside their national treasuries. On the other hand, there are some bonds offered by corporations that offer high interest payments as a lure to investors, but, by contrast, these corporations run a high risk of defaulting on their bond obligations. Fixed income management entails balancing out these risk and return levels to provide investors with growth of capital without putting it in too much jeopardy.

Individuals who wish to put their fixed income management in the hands of others can seek out mutual funds or hedge funds. Both of these are pooled investment vehicles managed by investment professionals, who take capital from various sources and invest it in a variety of fixed income securities. Mutual funds are generally open to all investors, while hedge funds require a certain level of investment experience and a huge commitment of capital from investors before they can join.

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