Fixed income funds may not be used for income at all, but are relatively safe investments that primarily consist of dividend-paying bonds.
Fixed income funds, also known as bond funds, invest primarily in bonds, but might also include some preferred stock, which pays regular dividends and behaves much like debt instruments. In fact, there are also Preferred Stock Funds and ETFs that fit into this category.
Bond funds are much more popular, however, since they are slightly more secure and predictable instruments. For more information on preferred stock, see “What Is Preferred Stock?”
Unlike individual bonds, which tend to pay their interest semiannually, some fixed income funds pay monthly. In addition, fixed income funds allow you to diversify your bond portfolio in an affordable manner, as most people cannot afford to purchase 100 separate individual bonds.
Fixed income funds can focus on short-term, intermediate-term, or long-term bonds, as well as on government bonds, municipal bonds, corporate bonds, junk bonds, and so on. While they are called “fixed income” instruments, the dividends and income payment can be just as easily reinvested for compounding effects.
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Mutual funds are actively managed. ETFs are mostly passively managed, usually track a specific market index, and can be bought and sold like stocks.
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