what is an income fund 
an income fund is a type of mutual fund or exchange traded fund etf that emphasizes current income either on a monthly or quarterly basis as opposed to capital gains or appreciation such funds usually hold a variety of government municipal and corporate debt obligations preferred stock money market instruments and dividend paying stocks the basics of income fundsshare prices of income funds are not fixed they tend to fall when interest rates are rising and to increase when interest rates are falling generally the bonds included in the portfolios of these funds are investment grade the other securities are of sufficient credit quality to assure the preservation of capital there are two popular types of high risk funds that also focus mainly on income high yield bond funds that invest primarily in corporate junk bonds and bank loan funds that invest in floating rate loans issued by banks or other financial institutions income funds come in several varieties the primary differentiation involves the types of securities they invest in to generate income money market fundsmoney market funds generally invest in certificates of deposit cds commercial paper and short term treasury bills these funds are designed to be very safe investments aiming to maintain a low share price at all times but they also tend to offer relatively low yields while these funds don t carry the federal deposit insurance corporation fdic insurance that bank products do money market funds have traditionally provided a high degree of safety bond fundsbond funds typically invest in corporate and government bonds government bond funds carry virtually no default risk and therefore can act as a safe haven for investors in times of uncertainty but normally offer lower yields than comparable corporate bond funds corporate bonds carry the additional risk that the issuer may not be able to make principal or interest payments as a result they tend to pay higher interest rates to account for the additional risk corporate bond funds can be split into investment grade bond funds and below investment grade or junk bond funds equity income fundsmany companies pay dividends on their stocks funds invested primarily in stocks that pay regular dividends are known as equity income funds these types of funds are especially popular among retirement age investors that look to live off of the predictable monthly income generated from their portfolios historically dividends have provided a significant percentage of a stock s total long term return other income fundsother income producing funds include those focused on real estate investment trusts reits master limited partnerships mlps and preferred stocks example of an income fundthe t rowe price equity income fund has 17 51 billion in net assets as of q1 2021 and seeks a high rate of growth through high dividend paying stocks in combination with capital appreciation the fund which distributes payouts quarterly paid a dividend of 0 18 per share on dec 14 2020 the fund has performed relatively in line with its benchmark 1 an investment of 10 000 in the t rowe price equity income fund at inception in 1985 would be worth around 24 5100 as of feb 28 2021 the lipper equity income funds average result for the same amount over the same period would be about 25 150 