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Fixed-Income Fund: Alternative to Savings Account

By Ashikur Rahman Tusar

Software Developer

EDGE AMC Limited

Posted on: 20 Dec, 2023

With the hope of a more comfortable and brighter future, Rahman opened a Savings Account in a bank in Bangladesh. He is setting aside 15-25% of his income for the savings account every month when he receives his salary. His dream of accumulating a substantial amount by the time he retires keeps him disciplined in his monthly practice of saving a percentage of his salary.

However, he soon realized that maintaining this habit alone wouldn’t be enough. A simple back-of-the-envelope calculation showed him that an inflation rate of 5–10% or more would not only let his saved-up funds grow fast enough but also eat away their value quite quickly by the time he retires. His savings account was offering him 2-3% interest on his saved money, whereas 5–10% inflation was effectively depreciating the value of his savings by 3–7%—to put simply, he was losing money rather than growing it.

This is the unfortunate reality facing us all. But there’s a great way to overcome it. Fixed-income funds—which provide higher returns than savings accounts while simultaneously providing the liquidity of savings accounts and similar safety—are wealth saviors when inflation is waiting to eat away at your wealth.

The Wealth Savior: Fixed-Income Fund

A fixed-income fund invests mostly in assets with minimal risk, such as government Treasury bills and bonds and other stable income-generating assets.

When you put your money in a fixed-income fund, you accumulate interest income on top of your savings every week since the fund is concentrated in government Treasury bills and bonds that make guaranteed payments. With profits from such stable assets, fixed-income funds can deliver an annual return of 6–8% on average. The potential returns become even more attractive when interest rates are rising, like today.

To make things better, a fixed-income fund allows you to enjoy a tax rebate of up to BDT500,000 alongside decent returns. Essentially, with such a fund, you’re shielding your income from both inflation and taxation.

Rahman, in our example, not only shields his savings with such a fund, but he is also able to withdraw his savings with accumulated interest income at any time. In summary, Rahman enjoys steady and decent returns and high liquidity from a fixed-income fund.

You may take a look at our High-Quality Income Fund if you’re interested in investing in fixed-income funds.

To learn more about mutual funds, you may read our guide on mutual fund investing.