Income funds are mutual funds which invests in securities or shares, which offers income to the shareholders, in the nature of dividends or interests. Such funds usually hold wide variety of securities like government bonds, money market instruments etc.
- Principal objectives of this fund are capital preservation & income distribution
- Wealth building is secondary objective for such funds
- These funds invest in relatively conservative & less risky securities .These securities are usually known for stability & credit worthiness of dividend or interest distribution.
- These funds provide diversification in investments in nature of bonds & stocks.
Advantages of Income Funds
- High liquidity – These funds can be converted into cash without any lock in period specified for selling the same.
- Are more superior to plain fixed deposits in terms of real return. Real return is calculated after reducing inflation effect from the actual returns
- Long term capital gain on sale of Income funds is eligible for 10% taxation without indexing or @ 20% with indexation. Hence these funds are better option for tax management.
- These funds are highly flexible. It gives dual benefit of steady income & capital security.
- It exploits advantage of experience of the fund manager, who invests in various securities systematically, to obtain synergy from their income streams.
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