What is an income fund?

Learn about the different types of income funds and their level of risk and return.

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What is an income fund? An income fund is a mutual fund that focuses on providing investors with a consistent income stream from a portfolio of investments.

There are several types of income funds, each with a different level of risk and return, depending in what they invest.

Cash funds are generally regarded as a low-risk option and look to provide income from interest payments through investing in cash deposits. They offer an alternative to ordinary savings accounts, as cash funds usually have higher returns and are very liquid.

Fixed income funds invest in bonds, which are a loan between an investor and a bonds issuer, such as a government or corporation. Bonds provide income through regular interest payments called 'coupons', which are paid by the borrower in exchange for the loan.

Then there are equity income funds, which aim to provide income through regular dividends received from investments in higher dividend paying stocks. Over the long term, the income from these funds tends to be higher than cash and fixed income funds. However, this also means higher risk.

And finally, there are multi asset funds, which aim to deliver a specific investment outcome, like consistent income by investing in a mix of assets. This mix can include cash, bonds and equities, as well as alternative assets like real estate, infrastructure, commodities and renewable energy.

In today's market, it remains challenging for investors to choose an income fund. Thinking about the level of income that you want to receive, your tolerance for risk, and how long you plan to stay invested will help you with this decision.

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