Best Fixed Income Funds UK – Invest with Zero Fees

Are you interested in an asset that is low-risk whilst also providing you with consistent returns? If so, investing in a fixed income fund might be an excellent option for you.

In this guide, we will discuss the Best Fixed Income Funds UK, highlighting various aspects you must consider before investing. Furthermore, we’ll also show you how to invest in fixed income funds with an FCA-regulated broker – without having to pay a penny in commissions!

Best Fixed Income Funds UK List

Found below are our top ten picks when it comes to investing in the best fixed income funds UK. In the section that follows, we will discuss these funds one by one, examining their past performance and analysing the type of assets they invest in.

  1. Vanguard Total Bond Market ETF – Overall Best Fixed Income Fund UK – Invest Now
  2. JPMorgan Ultra-Short Income ETF – Most Cost-Effective Fixed Income Fund UK – Invest Now
  3. 20+ Year Trsy Bond Ishares – Best Fixed Income Fund UK for Investing in US Treasury Bonds – Invest Now
  4. iShares TIPS Bond ETF – Best Fixed Income Fund UK to Protect against Inflation
  5. PIMCO Active Bond Exchange-Traded Fund – Best Fixed Income Fund UK for Active Management Style
  6. iShares Core 1-5 Year USD Bond ETF – Best Fixed Income Fund UK for Low Volatility
  7. Janus Henderson Fixed Interest Monthly Income Fund – Best Fixed Income Fund UK for High Returns
  8. BlackRock Fixed Income Global Opportunities Fund – Best Fixed Income Fund UK for Diversification
  9. Aberdeen Global Income Fund – Best Fixed Income Fund UK for Capital Appreciation
  10. Fidelity US Bond Index Fund – Best Fixed Income Fund UK for Exposure to the US Market

Best Fixed Income Fund to Invest in Reviewed

As the global market recovers from a tough 2020 due to the Coronavirus pandemic, bond funds have become an increasingly attractive investment opportunity due to their low volatility and consistent nature. Furthermore, a recent report by Morgan Stanley stated that we could see some fantastic opportunities in areas such as high-quality fixed income securities over the coming year.

If you’re interested in getting involved in the fixed income market, this section will provide the lowdown on the top ten fixed income funds UK. Each fund will be discussed in detail, touching on their previous performance and analysing the type of assets they invest in.

1. Vanguard Total Bond Market ETF – Overall Best Fixed Income Fund UK

The first fund we will discuss is the Vanguard Total Bond Market ETF. With net assets of over $302 billion, this fund is one of the most popular fixed income best investment funds due to its extremely low costs and consistent returns. Furthermore, because this fund invests primarily in medium-term US Treasuries, it even offers a reliable yield to investors, which is distributed monthly.

Vanguard Total Bond Market ETF

Looking at performance, this fund has been incredibly consistent over the past decade, returning over 5% in four of the past ten years. It even returned an impressive 7.71% in 2020, which is admirable given the scale of the Coronavirus lockdown. With an expense ratio of only 0.03%, this fund is also one of the cheapest to hold in the market. If you’re wondering how to invest 1000 pounds or more, we recommend using an FCA-regulated broker such as eToro, as they allow you to open a position in the fund without paying any commissions!

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2. JPMorgan Ultra-Short Income ETF – Most Cost-Effective Fixed Income Fund UK

The JPMorgan Ultra-Short Income ETF is a fantastic option for investors looking to gain exposure to the corporate bond market cost-effectively. This fund predominantly invests in short-term bonds with a duration of less than one year; this allows the fund to minimise risk for investors, as short-term bonds are considered less risky than longer-term ones. Furthermore, this fund mainly targets investment-grade corporate bonds to produce a higher yield for investors.

JPMorgan Ultra-Short Income ETF

With an expense ratio of only 0.18%, this fund is relatively inexpensive to invest in compared to its peers. In fact, if you invested £1000 in this fund, you’d essentially only have to pay £1.80 in fees per year! This fund also offers a fixed yield of 1.22% per year; although not as high as some other funds on this list, it’s still a more attractive income level than you would receive from some other low risk investments. Overall, if you’re looking for a cost-effective way to generate a consistent fixed income, the JPMorgan Ultra-Short Income ETF represents a fantastic option.

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3. 20+ Year Trsy Bond Ishares – Best Fixed Income Fund UK for Investing in US Treasury Bonds

US Treasury bonds are considered one of the safest assets globally, as they are essentially ‘backed’ by the power of the US government – meaning it is extremely unlikely that these bonds would ever experience a default. This type of bond is even used in various financial models as the ‘risk-free rate’! The 20+ Year Trsy Bond Ishares is one of the best fixed income investment funds UK for gaining exposure to this type of bond, providing you with a very low-risk asset that offers steady capital growth and a reasonable yield.

20+ Year Trsy Bond Ishares

One great thing about this fund is that because it invests in long-term US Treasury bonds, it can generate higher returns than funds that invest in short-term bonds. Looking at the last couple of years, this fund has performed exceptionally well, returning 14.93% and 17.92% in 2019 and 2020 respectively! Also, the fund offers an annual yield of 1.61% to investors, providing a consistent level of fixed income. Finally, if you’re looking to invest in this fund, we recommend using eToro – they allow you to invest commission-free, with a minimum investment of only $50 (around £36).

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4. iShares TIPS Bond ETF – Best Fixed Income Fund UK to Protect against Inflation

Inflation essentially refers to the rise in the price of goods and services within an economy over a period of time; as prices all slowly rise, the value of a unit of currency decreases as you can buy less than you could previously. The iShares TIPS Bond ETF aims to hedge against inflation by investing in bonds that increase in value as inflation rises. Due to this, this fund essentially performs better in high-inflation environments, providing investors with protection against medium-term inflation rates.

iShares TIPS Bond ETF

Another fantastic feature of this fund is the monthly income payment it provides investors and so is a great choice if you want to invest for a monthly income. Offering a yield of 1.09%, this fund can supply a consistent passive income level, especially if you are investing more significant amounts. In terms of performance, the iShares TIPS Bond ETF has made a positive return in four of the past five years, even returning a solid 10.91% in 2020 alone. The combination of inflation-protected assets, a consistent yield, and solid returns make this fund one of the best UK fixed income funds you can invest in today.

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5. PIMCO Active Bond Exchange-Traded Fund – Best Fixed Income Fund UK for Active Management Style

If you’re looking for one of the best fixed income funds UK that applies an active management style, then this fund may be an excellent option for you. The PIMCO Active Bond Exchange-Traded Fund aims to use a risk-focused approach to investing, employing some top fund managers and analysts to actively rebalance and invest in securities that can provide the best risk-adjusted returns. This fund’s assets include US Government bonds and Securitised Debt – this latter asset is slightly riskier than other bond types but can often provide more substantial cash flows.

PIMCO Active Bond Exchange-Traded Fund

Offering an attractive yield of 2.65%, this fund provides a level of fixed income that will appeal to most investors. Furthermore, this fund has made a positive return in seven of the last eight years and has even returned over 7% in the past two years alone. Although some of the assets this fund invests in are considered slightly riskier than others, the fact it operates through an active management style means that overall risk can be optimised, providing a fixed income fund that offers attractive risk-adjusted returns.

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6. iShares Core 1-5 Year USD Bond ETF – Best Fixed Income Fund UK for Low Volatility

If you’re looking for a fixed income fund with low volatility and a small expense ratio, then the iShares Core 1-5 Year USD Bond ETF represents an interesting investment option. This fund invests in short-term investment-grade bonds, which have the highest credit ratings available. Due to these bonds’ short-term nature, they are often referred to ask ‘risk-free’ – although this isn’t necessarily true, they are as close as you can get to a risk-free asset.

iShares Core 1-5 Year USD Bond ETF

All of the bonds included within this fund have a duration of 1-5 years, leading to a very low-risk asset that is ideal for including within your portfolio if you are looking at stability. This fund has also provided a positive return in each of the past five years, even producing a solid 4.76% return for investors in 2020 which was higher than many market indices. Also, the iShares Core 1-5 Year USD Bond ETF pays a yield of 2.15%, distributed monthly. This consistent income, combined with the asset’s low-risk nature, makes this fund a favourite of many investors.

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7. Janus Henderson Fixed Interest Monthly Income Fund – Best Fixed Income Fund UK for High Returns

If you are interested in investing in a fixed income fund but are also looking for higher returns, it may be worth considering the Janus Henderson Fixed Interest Monthly Income Fund. This fund is one of the oldest bond funds in the UK and invests primarily in high-yield bonds. Although these assets are slightly riskier than other bond types, they do offer the potential to generate higher returns.

Janus Henderson Fixed Interest Monthly Income Fund

This is evidenced by the returns this fund has produced in recent times. In 2019, the fund returned 12.80% for investors, which is a remarkable return for a fixed income fund. In addition, the fund has only produced a negative return in one of the last 12 years, highlighting its consistency. Finally, this fund also offers an attractive yield of 3.90%, one of the highest on our list. These factors combine to make the Janus Henderson Fixed Interest Monthly Income Fund a great prospect for a multitude of investor types.

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8. BlackRock Fixed Income Global Opportunities Fund – Best Fixed Income Fund UK for Diversification

The majority of fixed income funds tend to focus on securities located in developed nations such as the US and the UK, as these securities are deemed the safest. However, if you are looking to diversify your portfolio geographically, investing in the BlackRock Fixed Income Global Opportunities Fund could be a great way to do this. This fund invests in fixed income securities from a wide range of countries, including China, Italy, Mexico, and France. Through these investments, the fund aims to maximise total return for investors.

BlackRock Fixed Income Global Opportunities Fund

Over the past decade, this fund has produced an average yearly return of 3.38%, highlighting how consistent this fund is. One thing to note though, is that it does not offer a yield, setting it apart from other fixed income funds. So, if you invest in this fund, you must be aware that you will not receive a passive income stream. If you are happy with this and are looking to diversify your portfolio through investing in global bonds, then the BlackRock Fixed Income Global Opportunities Fund may be an excellent option for you.

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9. Aberdeen Global Income Fund – Best Fixed Income Fund UK for Capital Appreciation

The Aberdeen Global Income Fund is one of the best UK fixed income funds, as it aims to provide investors with a high level of current income through intelligent investment in debt securities. With over $80 million of assets under management, this fund focuses primarily on government and corporate bonds, which provide steady cash flow through interest payments. Furthermore, these bonds that the fund invests in are located in a wide variety of countries – providing a solid level of diversification to add to the mix.

Aberdeen Global Income Fund

Since the beginning of 2021, this best Global Income Fund has produced an impressive 10.13% return for investors. Furthermore, if you had invested on this day last year, you would be up over 67%! Although the expense ratio on this fund is on the higher side at 2.49% per year, it still represents good value for money when you consider its possible returns.

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10. Fidelity US Bond Index Fund – Best Fixed Income Fund UK for Exposure to the US Market

The last fund we will examine in this guide is the Fidelity US Bond Index Fund. As the name suggests, this fund invests primarily in US Treasury bonds, which allows the fund to be low-risk whilst also providing steady returns. Furthermore, this fund also has one of the lowest expense ratios on the list, clocking in at 0.025% per annum. This means that if you invested £1000 in this fund, you would only have to pay 25p in fees for the whole year!

Fidelity US Bond Index Fund

Looking at returns, this fund has performed remarkably well over the past decade, making a positive return in every year apart from 2013. Furthermore, it even returned over 7% in 2019 and 2020, which is impressive considering the market volatility that many other assets experienced. Lastly, the Fidelity US Bond Index Fund even offers a yield of 2.02%, allowing investors to generate a passive income stream. This passive income stream, combined with consistent capital growth, makes this fund an attractive prospect for both retail and professional investors.

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What are Fixed Income Funds?

Fixed income funds are a specific type of mutual fund that invests in fixed income paying assets. The vast majority of the time, these assets come in the form of bonds. Put simply, bonds are a fixed income security that represents a loan from one party to another. For example, if a company wishes to raise capital, it can do so by issuing bonds. What then happens is that investors or other companies will buy these bonds, and in return, they will receive periodic interest payments from the issuer. Once the term on the bond is up, the company will repay the initial amount of money they received, also known as the principal.

The reason fixed income funds invest in bonds such as this is because bonds provide a consistent and reliable stream of income through monthly, quarterly, or annual interest payments. These interest payments are determined using the specific interest rate (or bond yield) quoted on the bond. For example, if a bond had a value of £1000 and offered an annual yield of 10%, investors would receive £100 per year in interest payments.

best fixed income funds UK

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How fixed income funds operate is by pooling money from investors and investing in bonds such as these, which provide a steady income stream via interest payments. As there are many different bond types available, fixed income funds can be segregated by the type of bond they invest in. Some fixed income funds will invest in safer bond types, such as UK GILTs issued by the UK government. Other funds will invest in slightly riskier bond types, such as corporate bonds, which tend to pay a higher yield but have an increased chance of default.

Through their investment in these bonds, fixed income funds can generate capital growth and current income for investors. Capital growth comes from the returns the fund makes; if you invest £1000 and the fund makes an annual return of 3%, you will end the year with £1030 (minus any fees you need to pay). Current income comes from the periodic payments that are made to your account from the fund provider. These payments, as mentioned previously, are derived from the interest payments generated from bond investing.

Why Invest in Fixed Income Funds?

Now that you’ve got an idea of what fixed income funds are and the type of assets they invest in, you’re probably wondering what benefits they can offer you as an investment. This section will discuss three of the main reasons you should consider investing in fixed income funds.

Low Risk

You’ve probably realised by now that one of the main reasons fixed income funds are so attractive is because of their low-risk profile. The past year has shown how volatile the markets can be, with many investors flocking to ‘safer’ assets such as gold funds to hedge against market shocks. However, one of the safest asset classes is bonds, which tend to be the main focus of fixed income funds.

fixed income funds price chart

A recent article from Forbes stated that one of the best fixed income investments you can make during a low-rate environment is in investment-grade corporate bonds. Luckily, many of the fixed income funds on our list include this type of asset in their portfolio. Overall though, when you consider the lower risk relative to other assets such as equity funds, fixed income funds represent a solid investment for more risk-averse investors who are looking for a consistent income stream.

Consistent Level of Passive Income

Talking of consistent income stream, another reason to invest in fixed income funds is the level of current income they can provide. Much like the best bond funds, not only do you get the benefit of capital gains – but you also get the benefit of a passive income stream that stems from the interest payments generated by bonds.

This income stream is represented by the fund’s yield; some funds have higher yields than others. Also, the income stream is distributed in different frequencies depending on the fund; it can either be monthly, quarterly, semi-annually or annually. When income payments are made, they go straight into your brokerage account, where you can either withdraw them, reinvest back into the fund, or even use them to invest in other assets.

Diversification

A recent article by the Financial Times highlighted how important it is to include fixed income assets such as bonds into your portfolio, thanks to their consistent income streams. This ties into the element of diversification, which involves spreading your capital over various assets that are uncorrelated with one another in an attempt to reduce overall risk. If you hold a portfolio of equities, it is wise to consider introducing fixed income funds into the equation, as they can help offset losses made by equity investing.

This is because fixed income assets (particularly bonds) tend to be negatively correlated with equities. This means that when stock prices drop, the value of bonds increases as more investors flock to these ‘safer’ assets. So, as you can imagine, fixed income funds that invest in bonds are thought of as a great way to diversify your portfolio, especially in times of market panic.

Best Fixed Income Funds Brokers

If you like the sound of fixed income funds and are looking to earn a consistent income by investing in one, you must find a reputable broker to facilitate this investment. There are so many of the best stock brokers in the marketplace right now that it may seem daunting trying to figure out where to start.

Not to worry – this section will cover two of the best brokers to trade fixed income funds within 2021.

1. eToro – Overall Best Broker to Invest in Fixed Income Funds

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Our recommended broker when it comes to investing in the best fixed income funds is eToro. eToro is regulated by the FCA, providing you with the highest protection levels for both your money and your personal details. In addition to this, eToro is also partnered with the FSCS, which provides insurance for your capital in the extremely unlikely instance that the firm goes bankrupt.

etoro etfs

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One of the main reasons to choose eToro for your fixed income fund investments is because they do not charge any commission or dealing fees when you place a trade. In addition to this, there’s no monthly account fee or platform fee either! This means that when you invest in fixed income funds, the only cost you’ll have to pay is the expense ratio charged by the fund’s provider.

What’s more, if you’re looking to construct a portfolio of assets along with fixed income funds, eToro offers a vast selection to choose from. With over 2000 stocks available to invest in, along with ETFs and commodities, eToro ensures there is an asset that fits every investor’s needs. Furthermore, you can even trade cryptocurrency if you wish!

etoro best fixed income funds UK

If you like what you see when it comes to eToro, you can have an account set up and ready to go in as little as ten minutes! Once created, you can deposit funds through many methods, such as credit/debit card, bank transfer, and e-wallets. Furthermore, you can even begin investing in fixed income funds for as little as $50 per position (around £36)!

Pros:

  • Super user-friendly online trading platform
  • Invest in fixed income funds without paying any commission
  • Trade CFDs in the form of stocks, indices, commodities, forex, and more
  • 2,400+ stocks listed on the UK and international markets
  • 150+ ETFs
  • Deposit funds with a debit/credit card, e-wallet, or UK bank account
  • Ability to copy the trades of other users
  • FCA and FSCS protections

Cons:

  • Not suitable for advanced traders that like to perform technical analysis
  • No ISAs or SIPPs

67% of retail investors lose money trading CFDs at this site

2. Fineco – Low-Cost Broker to Invest in Fixed Income Funds

Fineco logo

If you’re looking for an alternative broker to facilitate your investment in a fixed income fund, then Fineco is a great choice. Based in Italy, Fineco is listed on the Italian Stock Exchange and is regulated in the UK by the FCA and the PCA.

The great thing about Fineco is that they do not charge any dealing fees when investing in their fund selection. However, you will need to pay a small annual fee for holding the fund; this equates to 0.25% of your position up to £250k and can increase as your position size increases. So, if you invested £1000 in a fixed income fund with Fineco, they would charge you a small fee of £2.50 per year. You would also have to pay the expense ratio that the fund provider charges too.

fineco invest in fixed income funds

Fineco does not charge any fees for depositing into your account, and you can do this via bank transfer. In addition to this, if you make a profit and wish to withdraw, Fineco does not charge any withdrawal fees either, meaning more of the profits are yours to keep.

Finally, if you’re looking to buy shares in other assets alongside fixed income funds, then Fineco has a huge range to choose from. Offering over 13 stock markets from around the world, along with over 5000 ETFs to choose from, there’s sure to be an option for everyone. Alongside this, Fineco also offers FX trading, bonds, and options.

Pros

  • No dealing charges when investing in fixed income funds
  • Access to thousands of UK and international shares
  • Deposit funds with a UK bank account
  • Heavily regulated, including an FCA license
  • Listed on the Italian Stock Market
  • Offers ISAs and SIPPs
  • All personal data protected

Cons

  • 0.25% annual fee when holding fixed income funds
  • No support for debit or credit cards

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How to Invest in Fixed Income Funds on eToro Tutorial

If you’re ready to invest in a fixed income fund and are wondering how to do so, then you’re in the right place. This section will guide you through the process step-by-step with FCA-regulated broker eToro.

Step 1: Open an Account

You’ll first need to open an account with eToro. Simply click the ‘Join Now’ button on their homepage, enter some personal details, and choose a username and password. You can also do this through their investment app.

etoro sign up

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Step 2: Verify your ID and Address

As eToro is regulated by the FCA, you must verify yourself before you can invest. Not to worry – this process is quick and easy to do. Simply upload proof of ID (a copy of your driver’s license or passport) and proof of address (a copy of a bank statement or utility bill). Once uploaded, eToro will start the verification process, which only takes a few minutes.

Step 3: Deposit Funds

Now you can fund your account. You can do this through various methods, such as credit/debit card, bank transfer, or e-wallet. We recommend using a credit/debit card as the funds will arrive instantly.

Step 4: Search for your chosen Fixed Income Fund

Once you have funded your account, simply click on the search bar at the top of the screen and type in the name of your chosen fixed income fund. In this example, we are looking to invest in the Vanguard Total Bond Market ETF. Once you’ve found your fund, click on it, and then click ‘Trade’ on the next screen.

etoro invest in fixed income funds UK

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Step 5: Invest in Fixed Income Fund

In the screen that follows, simply enter the amount you’d like to invest (minimum of $50), double-check everything is correct, and click ‘Set Order’.

etoro invest in UK fixed income funds

And that’s it! You’re officially an investor in one of the best fixed income funds UK!

eToro – Invest in the Best Fixed Income Funds UK – 0% Commission

This guide has discussed the best fixed income funds available in the marketplace in 2021, evaluating each fund in terms of performance and reviewing the type of assets the fund invests in. Due to their consistent returns and low-volatility nature, fixed income funds are a favourite of many investor types and will continue to offer an attractive investment for years to come.

If you want to invest in a fixed income fund today, we recommend using eToro to facilitate this. eToro is regulated by the FCA and allows you to invest in their whole range of ETFs without having to pay a penny in commissions. What’s more, eToro lets you invest in fixed income funds from as little as $50 (around £36), meaning you can start small and build your position up gradually.

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67% of retail investor accounts lose money when trading CFDs with this provider.

FAQs

What is a fixed income fund?

Fixed income funds are a specific type of mutual fund that invests solely in fixed income assets. These assets typically come in the form of bonds of various kinds, such as US Treasury bonds, corporate bonds, and municipal bonds.

How do I invest in a fixed income fund?

You can invest in a fixed income fund either through the provider of the fund or through an FCA-regulated broker like eToro. Most of the time, investing through a broker is more straightforward and requires less capital upfront.

What sort of returns can I make from a fixed income fund?

Fixed income fund returns are typically less than other funds, purely due to the low-risk nature of the assets they invest in. However, returns are usually more consistent and rarely display significant levels of volatility. For example, the Vanguard Total Bond Market ETF has only produced a negative return in two of the past 13 years, and both times the negative return was minimal.

What’s the best fixed income fund to invest in?

The answer to this question depends on your investment goals. If you are looking for a fixed income fund covering all the bases, the Vanguard Total Bond Market ETF is a great option. However, if you are willing to take on a little more risk for a chance at higher returns, then the Janus Henderson Fixed Interest Monthly Income Fund might be your best bet.

Are fixed income funds safe?

Fixed income funds are considered safer than other investment fund types due to the low volatility nature of the assets they invest in. Bonds are typically backed by large entities such as national governments or giant corporations, which reduces the chance that they will experience default. However, fixed income funds are not 'risk-free', so do be aware of the potential for loss before investing.

About Connor Brooke PRO INVESTOR

Connor is a Scottish financial expert, specialising in wealth management and equity investing. Based in Glasgow, Connor writes full-time for a wide selection of financial websites, whilst also providing startup consulting to small businesses. Holding a Bachelor’s degree in Finance, and a Master’s degree in Investment Fund Management, Connor has extensive knowledge in the investing space, and has also written two theses on mutual funds and the UK market.

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