A Look at the Income Fund

The income fund is a type of mutual fund that has some unique features and benefits. Here are the basics of income funds.

Income Fund

The income fund is a mutual fund that puts an emphasis on creating a regular income for its investors. This is in stark contrast to the traditional mutual fund model that aims to create capital appreciation for the shareholders. With an income fund, the mutual fund manager will seek to find investment securities that will pay a regular payment to the portfolio. These payments are then taken in collectively and distributed to the shareholders of the fund.


One of the primary investment vehicles for most income funds is the bond. Income funds will get involved with corporate bonds as well as government bonds. Most of the bonds that are invested in by income funds are considered investment grade. This means that they are considered very safe investments in most cases. By investing in investment grade bonds, mutual funds are essentially lending money to corporations or governments. These entities will then provide a regular monthly payment towards the interest that is owed on the debt. When a mutual fund uses the money from the fund to purchase thousands of different bonds, this can generate a significant monthly income for the portfolio. There is a very low risk of default with this type of investment. Even if the companies that are invested in default, the mutual fund is considered a creditor and will be able to get back their initial investment in most cases.


Although the majority of holdings in this type of fund is typically made up of bonds, income funds will also invest in stocks. However, instead of looking for stocks that will appreciate in value, they want to choose stocks that will provide a regular dividend instead. Many large companies will be relatively stable and regularly share their profits with shareholders. Therefore, income funds can take advantage of these types of stocks to create another source of income for themselves.


This type of investment is not suitable for every investor. However, there are certain groups of individuals that can benefit from it greatly. For example, this type of investment is very desirable for those that are retired or are nearing retirement. Retirees can invest a large portion of their retirement money into a good income fund and then receive a regular monthly payment. Retirees want to be able to maintain their wealth and provide themselves with a regular income to live off of.

This type of investment is also desirable for those that want to lower the amount of risk in their portfolios. For example, during a down stock market, it might be smart to liquidate the majority of your stock holdings and get involved with an income fund. This will help preserve your capital and still bring in some sort of a return.

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