Income investment funds range from a lower risk fund investing in government bonds, through to strategic bond funds, which invest across a range of different government and corporate bonds, and equity funds.
While bond funds are seen as carrying less risk than equity funds, there is variation in how these funds invest. This type of asset is known as fixed interest because bonds are fixed-term, interest-paying assets; bond funds will hold these assets and collect the yield paid, as well as trading bonds after they have been issued on the open market.
Government bond funds are lower risk, while corporate bond funds may have the flexibility to hold bonds issued by companies with lower credit ratings but higher yields.
Strategic bond funds are likely to have the most diversified portfolio of bond holdings with government bonds and corporate bonds issued by various providers, some of which may have lower credit ratings and a greater risk of default.
As with growth funds, there are investment funds available that invest in a wide portfolio of different assets, either directly or through other funds. This type of fund aims to return a regular income from different assets, while reducing exposure to one type of asset or market.
Funds investing in UK and global stocks and shares may aim to provide a regular income to investors. Funds may use active investment strategies to maximise income, as well as investing in company stocks and shares.
The focus of these funds may be companies that pay dividends – an income payment from a company to its shareholders.
Investment funds can pay a monthly income, but generally payments are made quarterly or twice a year.
See the table below for examples of income funds: