Income Funds

In the earlier posting, I wrote on the Fixed Income Funds. There is another type of funds known simply as Income Funds or in some cases Equity Yield Funds.

The major distinction is that for Fixed Income Funds, they invest in bonds, deposits and money market instruments that offer fixed and regular interest payments. For the Income Funds, they invest in equities or stocks that yield high dividend payments, but these dividend payments are not fixed and are dependent on the performance of the companies in that year of operation.

Instead of choosing stocks on your own and finding out the historical dividend payout of various listed companies, why not let the professional fund manager structures a portfolio of high dividend yielding stocks. As you buy into such an Income Fund, you can take advantage of the many stocks that are included in the Income Fund for a fraction of the costs of the total fund size (based on the number of units you buy in the Income Fund). You then overcome the limited capital you have to invest in so many stocks on your own.

Each Income Fund has its own investment objective. One Income Fund could be investing in stocks in infrastructure, utilities and real estate sectors. Another Income Fund could be focusing on stocks covering Asian real estates. Another could be focusing on entertainment related stocks.

The main aim of all these funds is still the same which is to derive income from stocks with expected high dividend yields. Some of these funds may intend to provide investors with quarterly dividend payments. You have to read the prospectus of each fund to understand how the dividend income is going to be distributed to the investors of the fund.

Like any equity unit trust, there are risks involved in investing in Income Fund because the underlying assets of the fund are still stocks. Though the risk is somewhat reduced by diversifications of stocks in the portfolio, you are advised to assess the risk of different Income Funds available to the investors.

Written on 2/25/2007 10:29 AM

Copyright © 2007, the author known as LKT in Singapore.

The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.

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