Income funds have been around for quite a while and subjectively became part of an investor’s tool kit. Several investors rope in income funds with a goal of capital preservation and steady capital growth. Arguably, the inclusion of an income fund brings diversification, which is instrumental in the overall growth of the investment. This article seeks to lay out the underlying reasons why an income fund is necessary for your investment objective.
First and foremost, an income fund is universally defined as a conservatively managed unit trust or exchange-traded fund (ETF) that places emphasis upon current income as opposed to capital gains. In general, income funds have a huge holding in fixed income instruments, preferred stocks as well as money market instruments and a moderate holding in dividend-paying stocks. However, the structure of each fund varies based on the underlying investment objective of the fund manager.