Managing the Declining Return of Fixed Income Mutual Funds

When investing in Fixed Income Mutual Funds, there will be a time when you get lower return. These instances are common in investing. Therefore, before choosing the type of investment, investors need to identify their own risk profile first.

Please note that fixed income investments will not always perform well. There will be a period of lower profits because it is influenced by several factors. Therefore, when becoming a Mutual Fund investor, it is important to know what will affect the profits of the investment.

What are Fixed Income Mutual Funds?

As a reminder, let's revisit what Fixed Income Mutual Funds are. Fixed Income Mutual Fund is a type of Mutual Fund that allocates most of its funds to the debt and bond market. It's called fixed income because the debt securities in its portfolio offer fixed interest rate or yield on a regular basis.

However, it does not erase the possibilities of declining gain for the investors. Sometimes the market condition is on the decline, which affects the amount of profit from the investment.

Factors Affecting Fixed Income Mutual Fund Return

In order to do a better market analysis, you need to know some of the factors that affect the profit of fixed income investments. Basically, here are 3 main factors that can affect this investment.

1. Interest Rate
   The fluctuation of interest rates is the main factor that can affect the bond market. In principle, bond prices will increase when interest rates fall. On the other hand, bond prices will decrease if interest rates rise.

   This happens because when interest rates rise, the difference between bond interest and the benchmark interest rate will be smaller. In order to maintain stability, the price will be lowered.

   One of the factors that can influence the rise and fall of interest rates is the amount of inflation that occurs. Generally, Bank Indonesia will set the benchmark interest rate above the inflation rate. This is done in order to maintain people's purchasing power and the stability of the exchange rate.

   That way, when inflation is low and interest rates are stable at low levels, bond prices become positive. Meanwhile, if inflation is rising along with interest rates, then bond prices become negative.
   

2. Duration
   In this case the duration has two meanings. First, duration can be defined as the amount of time it takes to disburse the investors' funds on Fixed Income Mutual Fund investments.

   Second, duration can also be interpreted as the sensitivity of bonds to interest rates. In cases of fluctuating interest rates, the Investment Manager will take the suitable steps to deal with the movement of interest rates and inflation.

   Usually, if the inflation rate decreases, the Investment Manager will allocate investment funds in bonds that mature in about 3-5 years. Bonds with longer maturities will experience maximum price changes so that they will maximize profits.

   However, if the economic conditions are not good and potentially have a negative impact on interest rates and inflation, the Investment Manager will allocate investment funds to bonds with shorter maturities.
   

3. Coupon
   Coupon is bond interest that is distributed periodically. Investment managers often consider this interest in choosing bonds, in addition to the potential gain.

   However, Investment Managers do not always choose bonds that offer a high value of coupons, especially if the price is very expensive. This is because these bonds have the potential to reduce the overall yield.

   In addition, the Investment Manager tend to stay away from bonds with low prices and coupons. The reason is the possibility of not meeting the target profit.
   

Tips to Manage Declining Fixed Income Mutual Fund Returns

Usually, when the profits of fixed income investments decline, it is not uncommon for investors to panic, yet this behaviour will not help to overcome the challenges. So how do you deal with falling returns?

1. Revisit Financial Goals
   When returns are declining, the first thing you can do is to revisit the financial goals of the investment. Financial goals can determine the steps you should take.

   If the investment funds are intended to be used in less than 1 year, you can transfer your investment funds to other instruments that can provide maximum profits in shorter term, such as the money market.

   However, if the investment funds are not intended for purposes in the short term, you can leave it alone and take other steps to save the return.
   

2. Switch Investment
   Fixed Income Mutual Funds have many bond instruments to choose from. When your Mutual Fund assets in the market are experiencing a decline, then you can try to shift the allocation of investment funds to safer assets.

   For example, you are currently investing in Mutual Fund X. However, recently the Mutual Fund is experiencing a decline. On the other hand, you see that Mutual Fund Z's assets are having a good return. So, you can try to switch funds from Mutual Fund X to Mutual Fund Z in order to gain profit.
   

3. Increase Investment
   When returns decrease, another thing you can do to save the profits of Fixed Income Mutual Funds is to increase your investment. You need to remember that this mutual fund investment is intended for the medium term.

   That is, when your investment has decreased in a period of just a few months, you can consider increasing your investment. Because the investment still has enough time to restore its performance to a stable state.
   

4. Manage Finances Wisely
   When the performance of fixed income investments is declining, you should immediately check your finances. The reason is you will not get a return on this investment for some time because its performance is negative.

   That’s why you need to manage your finances wisely. Prioritise your needs and cut expenses that can still be postponed. If you still have money left over from savings, you can divert it to safer investments such as gold, or it can be saved in savings.

5. Keep Investment Budget Going
   Keep in mind that when investing in Fixed Income Mutual Funds, you must always be prepared to take risks, including declining returns. When investment is in a negative state, don't be discouraged from investing further. You need to maintain your budget for consistent investing.

   One of the keys to successful investing is to always invest in any market conditions consistently. With this mindset, you can take more suitable steps when your investment assets are on the red.

   Do not need to worry because basically investment aims to develop value for money. So, even if you currently experience a loss, one day that value will grow again and provide a return.
   

DBS Treasures as a Trusted Investment Partner

The market is down? Want to try other investments but don't know what to choose? DBS Treasures can be your trusted investment partner. Make the right move by joining DBS Treasures so that your investment plans and strategies can be tailored to your aspirations and risk profile.

DBS Treasures is a priority banking that will support you to confidently optimise your financial goals. DBS Treasures provides a wealth of Mutual Fund investment options, including Fixed Income Mutual Funds.

In addition, DBS Treasures has a myriad of benefits for all its clients. The following are some of the benefits that you can enjoy when you become a DBS Treasures client.

• Professional Fund Management

  Did you know that Mutual Fund investment is managed by a professional Investment Manager in partnership with DBS Treasures? DBS Treasures only partners up with reputable Investment Managers to optimise the performance of your investment products. Thus, the risk of the investment product you choose can be lower.

• Investment Insights from the Experts

  When you become a DBS Treasures client, you will not only gain knowledge about what Fixed Income Mutual Funds are, but you will also gain a lot of insight into various types of Mutual Fund investments from financial experts.

  DBS Treasures has a team of financial experts who are professional in their fields and are ready to proactively curate various information related to this investment. They will also personalise and communicate market analysis and current investment opportunities.

• Reduce Risk Through Diversification

  Diversification is an appropriate step to reduce the risk of losses in an investment. With DBS Treasures, you can diversify your investments easily.

  DBS Treasures has comprehensive assets to allocate your investment funds optimally. That way, if one asset performs poorly, you can still benefit from the other assets.

• Flexible Transaction
  

  When you decide to invest in Fixed Income Mutual Funds with DBS Treasures, you will experience easy transactions for various various investment needs.

  No need to go back and forth to branches or other applications because you can do everything in a single application. Simply use the digibank by DBS Application to monitor, buy, or sell your investment assets.

  In addition, when market conditions are declining, you can divert your investment funds to other assets more seamlessly. This is because, you do not need the switch to other applications when switching funds. Simply by using the digibank by DBS application, you can already save these investment funds.

  If you do not have an SID or Single Investor Identification issued by KSEI, you can register first through digibank by DBS Application. In addition, you can also connect with various mutual fund investment options from various Investment Managers or sort them based on Mutual Fund product categories.

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