Is it good to invest in income fund?
Income funds prioritize current income over capital gains or price appreciation through interest or dividend-paying investments. Therefore, they are usually best suited for lower-risk investors who need income flows.
Such funds are considered a low-risk option for investors because they typically hold stocks with a fair history of paying dividends. Due to the low-risk and fixed nature of income funds, they are popular among individuals who would like to create an additional income stream for when they retire.
Comparing Monthly Income Funds with Other Investment Options
While fixed deposits provide a guaranteed return, MIFs, with their mix of debt and equity, have the potential for higher returns, albeit with a slightly higher risk.
Income funds are structured to provide payments at regular intervals. The interval of payout will depend on the fund's specifics, but most funds pay out monthly, quarterly, and annual payments. Check the prospectus to see how often the fund pays out and look for specifics on ROC distribution.
If you are investing for the long term, you might emphasize growth. In this way, you will have time to weather a market downturn without changing your plans. Conversely, if you need quick cash to pay part of your living expenses or achieve a short-term goal, you may consider income investments.
Risk and Return
Income funds generally have less risk than equity funds since they primarily hold fixed-income securities. However, they also offer lower potential returns. An income fund's risk and return mix depends on the underlying securities' credit quality, interest rate changes, and the fund's management.
In fact, many income funds pay a stable monthly or quarterly distribution. It's important to know, however, that unlike GICs, income fund distributions are not guaranteed and can change at any time.
Income risk is the risk that the income stream paid by a fund will decrease in response to a drop in interest rates. This risk is most prevalent in the money market and other short-term income fund strategies (versus longer-term strategies that lock in interest rates).
Income funds are for those investors who wish to have a steady and regular income. These funds invest in quality stocks and high-quality debt papers. Income funds do not focus much on capital gains. Income funds carry less risk concerning default.
A monthly income plan is a type of mutual fund. The objective is to preserve capital and generate cash flow by investing in a mix of debt and equity securities. As such, they provide an alternative, steady income stream to investors who need it, including retirees. This comes in dividends or interest payments.
Do income funds pay dividends?
An income fund is a mutual fund or exchange-traded fund (ETF) that seeks to generate current income through dividends or interest payments. Some also provide an opportunity for capital appreciation.
Income Funds are a type of debt funds. Invest in debt instruments like debentures, corporate bonds, government securities, etc. for a longer duration. The Securities and Exchange Board of India (SEBI) classifies Income Funds as those debt funds whose Macaulay Duration is 4 years and more.
| Equity Mutual Funds | 3-year returns(%) | Expense ratio |
|---|---|---|
| Quant Mid Cap Fund(G) | 34.24 | 1.83 |
| Nippon India Small Cap Fund(G) | 31.35 | 1.52 |
| Quant Flexi Cap Fund(G) | 31.72 | 1.87 |
| Motilal Oswal Midcap Fund-Reg(G) | 31.35 | 1.75 |
| Symbol | Name | Dividend Yield |
|---|---|---|
| GOOY | YieldMax GOOGL Option Income Strategy ETF | 15.33% |
| TSLP | Kurv Yield Premium Strategy Tesla (TSLA) ETF | 15.20% |
| KHYB | KraneShares Asia Pacific High Income Bond ETF | 15.03% |
| HYGW | iShares High Yield Corporate Bond BuyWrite Strategy ETF | 14.45% |
| Ticker | Name | 5-year return (%) |
|---|---|---|
| STSEX | BlackRock Exchange BlackRock | 16.27% |
| USBOX | Pear Tree Quality Ordinary | 16.13% |
| FGLGX | Fidelity Series Large Cap Stock | 16.08% |
| PRCOX | T. Rowe Price U.S. Equity Research | 16% |
Income funds are often considered lower risk than funds that prioritize capital gains.
Fixed income securities also carry inflation risk, liquidity risk, call risk, and credit and default risks for both issuers and counterparties. Any fixed income security sold or redeemed prior to maturity may be subject to loss.
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.
If you choose to buy income units in the two AJ Bell funds designed for income, the income will be paid on a monthly basis into the account holding the fund e.g. ISA, SIPP, etc.
Fixed income broadly refers to those types of investment security that pay investors fixed interest or dividend payments until their maturity date. At maturity, investors are repaid the principal amount they had invested.
What is the best fixed income ETF?
| ETF | Expense ratio | Yield to maturity |
|---|---|---|
| Global X 1-3 Month T-Bill ETF (CLIP) | 0.07% | 5.5% |
| SPDR Portfolio Corporate Bond ETF (SPBO) | 0.03% | 5.5% |
| JPMorgan Ultra-Short Income ETF (JPST) | 0.18% | 5.5% |
| iShares 7-10 Year Treasury Bond ETF (IEF) | 0.15% | 4.4% |
Equities and equity-based investments such as mutual funds, index funds and exchange-traded funds (ETFs) are risky, with prices that fluctuate on the open market each day.
Equity Mutual Funds are prone to many risks but the most significant one is market risk. Equity Mutual Funds as a category are considered 'High Risk' investment products.
The Bottom Line
Safe assets such as U.S. Treasury securities, high-yield savings accounts, money market funds, and certain types of bonds and annuities offer a lower risk investment option for those prioritizing capital preservation and steady, albeit generally lower, returns.
1. Current NAV: The Current Net Asset Value of the Nippon India Income Fund as of Apr 12, 2024 is Rs 10.70 for IDCW Monthly option of its Regular plan. 2. Returns: Its trailing returns over different time periods are: 7.19% (1yr), 4.92% (3yr), 6.63% (5yr) and 8.31% (since launch).
