Explain why portfolios hold fixed income and the ways fixed-income mandates can be categorised

Bonds diversify equity risk because their correlation with shares is usually low, provide predictable cash flows for spending needs, can hedge inflation when inflation-linked, and match liabilities. Mandates fall into two broad families. Liability-based mandates aim to fund known obligations, as in immunisation or cash flow matching for a pension or insurer. Total return mandates target a benchmark and range from pure indexing through enhanced indexing, with small deviations in risk factors, to active management with larger bets on duration, curve, sector and credit. The choice depends on whether the client's main risk is falling short of liabilities or underperforming an index. A trap is assuming bonds always diversify; in inflation-driven sell-offs stocks and bonds can fall together.