Income Funds Explained

Income Funds such as Fixed Income and Equity Income have a focus on providing you a regular stream of income rather than outright capital growth. Their very aim is aligned to trying to provide you with the best income depending on the asset being invested in.

Income Funds are seeking to provide you with a steady return (and it’s likely there will be capital growth in there too). So within here you are likely to find:

  • Fixed Income: You’ll find less risk here and less capital growth but there will be income! This generally refers to UK Gilts, Global Bonds, Corporate Bonds and Emerging Market Bonds. The general principle is that a Government or Company wants to raise money, you buy into the bond and they provide you with interest or income until the end of the period. You then receive your initial outlay back. More info on Corporate Bonds and Gilts available is available here.
  • Equity Income: More risk but more room for capital growth too. These funds such as Equity Income Funds and Global Equity Funds will invest in equities that have a set of criteria in terms of their ‘yield’ i.e. how much they have returned to shareholders year-on-year in the form of dividends. Funds here invest in shares with good dividend prospects.
  • Equity Income and Bond: The best of both worlds. Again certain criteria as outlined by the The Investment Association oversees the requirements that need to be met.

So all in all Income Funds are a great way to generate bank-busting returns on your capital whether it be from Fixed Income or Equity Income. Fixed Income is generally viewed as less risky than Equity Income, however risk and reward can be increased within Fixed Income. For example, high-yield bonds within Bonds have a lower credit-rating but can provide a better income or yield if you are willing to take more risk!

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