Investors’ interest has evidently shifted from equity funds to taxable bond funds over the last few weeks. Taxable bond funds registered three consecutive weeks of inflows last week, according to the latest Lipper’s fund flow report. Additionally, data from the Investment Company Institute (ICI) for the week ended Mar 29 showed that taxable bond funds posted 17 straight weeks of inflows.

Taxable bond funds are debt securities whose interest income is taxable at state or federal levels. Funds from this category have higher risks as well as better yields than government bond funds. Hence, investing in taxable bond funds might be a wise investment option for bond fund investors willing to take on additional risk in search of higher returns.

Taxable Bond Funds Register Stable Inflows

As per the latest Lipper weekly fund flow report, equity-based funds saw the biggest weekly outflow this year, whereas taxable bond funds have been hogging attention. According to Lipper, taxable bond funds registered net inflows of $4.3 billion for the week ended Apr 5, preceded by an inflow of $5.6 billion a week earlier. The category saw inflows for three consecutive weeks after registering outflows of $5 billion for the week ended Mar 15. Additionally, ICI reported that taxable bond funds witnessed estimated inflows of $5.69 billion for the week ended Mar 29.

Moreover, as per Fed minutes released last week, some of the central bank’s policymakers are of the opinion that equity markets were significantly overvalued. A closer examination of Fed minutes from 1996 reveals that Fed concerns about valuations have been subsequently borne out by actual events in equity markets, according to data analytics company Kensho. In this context, investors may prefer bond funds over equity funds.

Why Buy Taxable Bond Funds?

Taxable bonds are fixed-income securities issued by the country or state, whose income is not tax-exempt. These kinds of bonds are used to fund a particular project or facility. Taxable bond funds are likely to yield better results banking on improving manufacturing and services activity and continued job creation. So, mutual funds with strong exposure to various taxable bonds are considered prudent investment options in an environment of steadily rising GDP.