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What are Income Mutual Funds? All That You Need to Know

What are Income Mutual Funds? All That You Need to Know
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If you are searching for funds that offer regular income and are tax efficient, you might have surely come across income funds. But what are these funds? Are they similar to hybrid funds? Read this post to find out.

An increasing number of investors are now looking for investment options that can provide an alternative mode of regular income. At the same time, they also want the investment to be tax efficient. Income funds perfectly fulfil these requirements.

These funds invest your money in equity, debt, and money market instruments to generate long-term capital growth while also providing regular income in the form of dividends. Let us have a detailed look at what these funds are and how are they hybrid funds.

What are Regular Income Funds?

Regular income funds are a type of mutual fund that invests your money in multiple asset classes. As mentioned above, most of these funds invest in equity, debt, and money market instruments.

They do not have any entry load but have an exit load of 1% of the investment if redeemed within 365 days from the date of investment.

What are the Different Types of Regular Income Funds?

As these funds invest your money in multiple asset classes, they are divided as per their asset allocation. There are generally three different types of income funds- Aggressive, Balanced, and Conservative.

Aggressive funds have more exposure to equity, and conservative funds invest most of their portfolio in debt markets. Balanced funds maintain a healthy balance of all the three asset classes.

How Are Regular Income Funds Also Hybrid Funds?

A hybrid fund is any fund that invests your money in two or more asset classes. As a result, regular income mutual funds are hybrid funds too. As the assets are allocated across different segments, these funds are also known as asset allocation funds.

With the investment spread across multiple asset classes, these funds are an excellent choice for investors looking to diversify their portfolio.

How Do They offer Regular Income?

Income funds regularly distribute income in the form of dividends. No matter if you are still working or are retired, these funds are an excellent way to have an additional source of income. Once the fund distributes dividends, the NAV of the fund is readjusted to make up for the distributed income.

While the returns from income funds are not as high as equity funds, most of the top funds are generally able to deliver returns higher than traditional FDs.

Who Should Invest?

Income mutual funds are ideal for investors looking for a regular and stable income. Depending on your risk appetite, you can go for either aggressive, balanced, or conservative income fund.

Many of these funds are also available with the growth option where the dividends are again reinvested in the fund to help investors earn higher returns. Such funds are an excellent option for investors looking to diversify their portfolio.

Conclusion

Regular income funds are one of the best options for anyone looking for an alternative source of income. With investment spread across multiple asset classes, they are safer than pure equity funds and offer decent returns too.

Try to know more about the working of these funds before browsing through the top performers to add stability to your investment portfolio and achieve better diversification.

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