Income funds are a class of debt mutual funds that invest in a combination of government securities, certificates of deposits, corporate bonds and money market instruments. They seek to generate returns, both in declining and rising interest rate scenarios by managing their portfolio actively.

• Fixed Income Funds • Equity Income Funds • Diversified Income Funds etc.

One of the greatest advantages of income funds is instant diversification. Income funds usually offer an added hedge against market risk and make it easy for investors to invest in a diversified pool of dividend or interest paying securities.

A limited risk type of fund, investing primarily only in fixed income related investments like CDs and bonds. Fixed income funds normally invest in bonds and other debt securities and have some potential for growth while providing a regular level of income. There are a wide variety of fixed income funds available that can focus on specific geographic regions, credit quality and term to maturity or fixed income securities.

Equity Income Funds seek high dividend income and future growth in income by investing a major portion of its capital in equity securities.

Diversified income funds seek to generate income by investing across various asset classes, sectors, and geographies. Like most income funds, they prioritize income generation over capital appreciation. Diversification plays a critical role. Certain asset classes will do well under certain market conditions, while others may do poorly. As market conditions inevitably change, the asset classes switch roles, with returns from some investments offsetting losses in others. The aim is to provide consistent investment returns with lower volatility.