What is an Income Fund?

An income fund is a mutual fund or exchange-traded fund that’s focused on investing in securities that are designed to generate income for investors. For example, that might be investing in dividend-paying stocks, bonds or Treasury bills, real estate investment trusts, money market instruments and shares of preferred stock.

Why do investors buy income funds?

Investors typically buy income funds because they want portfolio diversification and dividends. Generating passive income can help investors cover everyday expenses and achieve their retirement goals. Accumulating assets like stocks and real estate can lead to gains, but some funds aim to reward investors with steady cash distributions.

How do income funds make money?

Income funds generate regular income for investors by investing in fixed-income securities such as bonds, Treasurys, certificates of deposit (CDs), preferred shares, and money market instruments. Many use these funds to provide a steady income through interest and dividends while preserving their capital.