Income Funds

Income funds are mutual funds that provide a regular source of income for the investor. These debt mutual funds invest in a mixture of diverse assets such as certificates of deposits, Government securities, money market instruments and corporate bonds. This portfolio will be managed by experts in the field, who give priority to investing in assets with high interest rate movements that offer greater dividend benefits.

Depending on the type of holdings, these income funds can range from high risk investments to conservative investments. Shareholders who wish to invest in long-term funds will receive greater returns and a diversified portfolio.

Benefits of Income Funds

  • Compared to bank deposits, income funds accumulate more returns within a short period of time. However, it does not guarantee any fixed/assured returns.
  • Income mutual funds have high liquidity. The money invested in these shares can be withdrawn at any point of time, unlike in the case of fixed deposits that have a specific lock-in period.
  • These debt funds are actively managed by experts. The goal of selection of each asset combination for the portfolio is to generate good returns from different interest rate movements.
  • Better returns than other regular income generating investments.
  • Provides tax benefits to the investor, especially for those who fall within the 30% or 20% income tax brackets. Capital gains from funds held over a period of more than 1 year are taxed without indexation at 10% and with indexation at 20%.
  • These funds offer flexibility in terms of investing and withdrawing money. It ensures that the investor enjoys a regular cash flow.

How to Invest in Income Funds

While building your mutual fund portfolio, you can invest money in a combination of income funds and equity funds in order to gain maximum returns. The growth option under income funds accrues aggressive returns in the long-term. By opting for the systematic withdrawal plan and holding the funds for a period of at least 2 years, the investor can gain regular monthly income from the investment. Income funds are not as beneficial as short-term debt schemes, if the investment period is less than 18 months.

Best Income Funds Available in the Indian Market

Some of the best income mutual funds available in the Indian market are listed below:

  • ICICI Prudential Advisor-Dynamic Accrual Plan - Growth
  • ICICI Prudential Dynamic Bond Fund Premium Plus - Growth
  • Kotak Medium Term Fund Direct - Growth
  • ICICI Prudential Income Direct Plan - Growth
  • HDFC High Interest Dynamic Direct Plan - Growth
  • DHFL Pramerica Medium Term Income Fund Direct - Growth
  • Axis Income Fund Direct - Growth
  • HDFC Income Direct Plan - Growth
  • Franklin India Dynamic Accrual Direct Plan - Growth
  • Baroda Pioneer Dynamic Bond Direct - Growth
  • UTI Income Opportunities Fund Direct - Growth
  • ICICI Prudential Banking & PSU Debt Direct - Growth
  • IIFL Dynamic Bond Fund Direct - Growth
  • Birla Sun Life Treasury Optimizer Direct Fund - Growth
  • Reliance Dynamic Bond Fund Direct - Growth
  • ICICI Prudential Banking & PSU Debt - Growth
  • Birla Sun Life Treasury Optimizer Fund Regular - Growth
  • Reliance Regular Savings Fund Debt Plan Direct - Growth
  • Indiabulls Income Fund Direct - Growth
  • L&T Flexi Bond Fund - Growth

GST rate of 18% applicable for all financial services effective July 1, 2017.

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