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What is a dividend income fund?

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Quick Answer

A dividend income fund, according to Investopedia, is a mutual fund with a primary fund objective of generating regular income for investors. Investments by the fund are generally in dividend-paying stocks and in fixed-income securities issued by corporations and the government.

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Full Answer

Dividend income funds, unlike growth funds, focus on income rather than capital appreciation as an investment objective. It is important to look at a fund’s distribution rate, which provides information on whether a specific level of income is committed by the fund to an investor or whether income is paid out when dividends and interest from security becomes available, according to Dana Anspach for About.com.

Dividend income funds may be different types, such as close-ended, which is a fixed investment period; or open-ended, which invest only in securities that are part of a standard index. An alternate to investing in a dividend income fund is investing separately in dividend funds, such as investing in dividend-paying stocks, and in income funds, such as investing in fixed-income securities. Dividend income funds can be useful additions to a retirement portfolio by providing a steady income and acting as a hedge against inflation. Anspach includes a recommendation on specific dividend income funds for retirement income, each with a somewhat different investment strategy.

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