EXAMPLES OF INCOME FUNDS
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Income funds invest in securities that pay current income in the
form of dividends or interest. For example, stocks pay dividends,
and bonds and money market investments pay interest.
Equity income funds invest primarily in dividend-paying
stocks (such as preferred stock or common stock).
They favor stocks of large, established companies because such
stocks are not very volatile and have a good record of paying
dividends. Stocks of companies representing the utilities and
financial services industries are particularly used. Equity income
funds may have a secondary objective of principal growth. A
preferred stock is one that pays regular dividends.
Many income funds choose both stocks and bonds. These
mixed-income funds have a higher percentage of bonds than the
equity income funds do.
Bond income funds are made almost entirely of bonds.
There are several types of them:
Municipal bond funds, which invest in bonds issued by
state and local governments.
U.S. Government bond funds, which choose bonds issued by
the federal government.
International bond funds, which invest in companies and
governments of foreign nations.
Corporate bond funds, which are made of bonds issued by
private companies. One of the well-known types of corporate bonds
is the high-yield bond.
Convertible securities funds, which contain bonds that
can be converted into stock.
Money market funds are also income-oriented.
In our next section, you learn about the
performance of income funds.