Income Mutual Funds is another form of unsecured debt funds. Invest in common debt instruments such as debentures, government bonds, corporate securities, etc for a longer term. The Securities and Exchange Commission (SEC) classifies Income Mutual Funds as those mutual funds whose minimum Macaulay Duration is at least four years and more. A longer duration implies higher risk and the potential to earn less than you would from other investment vehicles.
What Are the Benefits of Income Mutual Funds? One major advantage of investments in mutual funds is that they allow investors to invest in a wide range of fixed interest rate securities. This gives diversification benefits – if one of your investments performs poorly, you do not necessarily have to lose all your other investments. If one of your investments does well, you can earn much more from your other investments. And if your other investments perform strongly, then your fixed interest rate savings from other investments will pay off your initial investment.
Is There a Best Time to Buy a Mutual Fund? The best time to buy an income mutual funds is when the current market value of the instrument is above the replacement rate. However, one should not buy an income fund when the balance is negative. An investor’s income fund investments offer excellent potential for gains. Therefore, if an investor has a goal of achieving a high return on his or her invested money over a long-term period, then a high return investment may be a better approach.
Expense Ratio Measurements for Income Mutual Funds One of the most important factors that investors consider before buying any form of financial instrument is the expense ratio. An expense ratio measures the amount of total revenue a company spends on its assets to get it to a specific revenue figure. All income fund companies do not have expenses the same way. A company with higher expenses than another could mean that company is losing money. The fund house calculates the expense ratio of each company’s income fund and uses this figure to determine which funds are best for an investor’s particular needs.
Dividends Paid Out When Interested In Dividends Some investors are interested in mutual funds that pay out regular dividends. When a company pays out regular dividends, these dividend payments are reported by the company’s shareholders. If the company is making good profits, then the dividends paid out will probably be a substantial amount. Therefore, a wise investor will look at the dividend history of any given company before deciding whether or not to purchase a mutual fund that makes dividend payments.
Value of Money The last thing any serious investor looks at before purchasing any type of financial investment is the value of the currency used to purchase the mutual funds. Most municipal bonds in particular do not pay high dividends; however, some companies do offer very attractive returns. The return should be enough of an incentive to move an investor’s funds from one mutual fund to another, but not so much that the investor cannot keep up with his or her other investments.
Achieving Growth An investor who is looking to achieve long term growth with his or her investing may prefer income funds over other types of mutual funds. Income mutual funds are designed to allow investors to earn both interest and rental income. These types of funds are great for people who like to supplement their income with a bit of investment income. By investing in government and corporate securities, the investor can also increase the value of his or her portfolio.
One disadvantage to the income sector is that most growth oriented investors tend to gravitate towards bond funds as opposed to pure equity income mutual funds. A bond fund will typically offer more fixed returns. An equity income fund will generally offer more variable returns. The advantage of investing in both types of funds is to diversify the investor’s portfolio so that it contains a mix of assets that will experience similar returns throughout the years. However, an investor must choose the type of fund that will work best with the investor’s risk tolerance and investment style.