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Income Funds (Fixed Income Funds)

Moneyzine Editor
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Moneyzine Editor
1 mins
January 19th, 2024
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Income Funds (Fixed Income Funds)

Definition

The term income fund refers to a portfolio of securities that are expected to provide investors with a reliable source of monthly or quarterly income. These funds may consist of bonds, money market funds, as well as equities that pay relatively high dividends.

Explanation

Also referred to as fixed income funds, income funds specialize in holding securities that will provide investors with a reliable source of quarterly or monthly income. This is accomplished by purchasing common or preferred stock with relatively high dividend yields, in addition to fixed income securities such as money market funds and debt obligations.

Lower risk funds will hold debt securities, such as bonds, that are of investment quality. This approach helps preserve capital when interest rates are falling. Higher risk funds may hold bonds that are not of investment quality, commonly known as junk bonds. While the yields on these debt obligations will be higher, the risk of default is higher too.

Investors choosing income funds will typically have relatively low risk tolerance scores, since their investment objective is the preservation of capital and a reliable source of income. While the value of these funds can be expected to underperform during a bull market, they can also be expected to outperform during a bear market, thereby exhibiting below average volatility.

Related Terms

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  • Emerging Markets Funds
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  • Global Funds (International Funds)
    The term global fund refers to a portfolio of stocks and fixed income securities issued by companies and governments around the world. The objective of a global fund is to provide investors with a hedge against inflation, and take advantage of geographies offering faster growth than found domestically.
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  • Balanced Funds
    The term balanced fund refers to a portfolio of stocks and fixed income securities that do not change their asset mix over time. The objective of a balanced fund is to provide investors with both capital appreciation as well as income.
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  • The term sector fund refers to a portfolio of securities issued by companies that operate in a specific industry or segment of the economy. The objective of these funds is to provide the investor with the opportunity to diversify within the sector.
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