| After the market problems of the past couple of | | | | time of maturity. In the example above, the $107 |
| years, fixed income investments have taken on a | | | | Bond Price will be worth $100 at the time of |
| greater appeal for individual investors. Although | | | | maturity. |
| most independent investors will rely on fixed | | | | Coupon Rate. This is the rate of interest that the |
| income mutual funds to bulk up this part of their | | | | fixed income investment pays over the duration |
| portfolios, investors should still have a basic | | | | of the bond. If the rate is 5%, then the bond with |
| understanding of the different components to a | | | | a face value of $100 will pay $5 per year. While |
| bond. | | | | individual coupon rates are irrelevant to an income |
| While mutual fund investments do not allow | | | | mutual fund, the fund's average coupon rate will |
| investors to pick and choose the securities held | | | | provide investors with an idea as to the direct |
| by the funds, knowing how these elements affect | | | | income generated from the portfolio of funds. A |
| the fixed income mutual fund's performance is | | | | fund that has a 5% average coupon that earns a |
| key to ensuring you are getting into the right | | | | 15% return over the course of the year has |
| investment in the first place. | | | | earned through capital gains and other |
| Price. The price of the security is what it would | | | | advantageous trades. It could indicate a difficult |
| sell for on the market as at that time. For mutual | | | | year in the following year. |
| funds, most pricing is completed at the close of | | | | Duration. This is the average amount of time that |
| market. The price will allow investors to determine | | | | the fund's bond portfolio will mature in. A high |
| a couple of things, including how much they are | | | | coupon and low duration during periods of low |
| paying for the income generated within the fund | | | | rates suggests that returns will suffer, whereas a |
| or by the investment. For example, a price of | | | | long duration and high rate in period of low rates |
| $107 for a bond suggests that the income is low | | | | suggest good income with the potential for |
| on this investment compared to current rates and | | | | dropping asset values. |
| that, if need be, the fund could liquidate such a | | | | As evidenced above, there is a lot more to |
| bond, they would incur a capital gain. | | | | consider when it comes to your fixed income |
| Face Value. For the most part, the face value of | | | | portfolio than simply buying a top-performing fund. |
| a bond will be $100 or a derivative thereof, like | | | | These areas are instrumental in determining the |
| $100,000. Most fund companies and Morningstar | | | | long-term success of a mutual fund and its |
| will report the price based on a $100 face value. | | | | stability of returns. Consider these areas carefully |
| This is the what the bond will be worth at the | | | | before buying fixed income mutual funds. |