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What is an Income Equity Fund?

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  • Written By: Dana DeCecco
  • Edited By: Amanda L. Wardle
  • Last Modified Date: 23 September 2016
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An income equity fund is a security or portfolio composed of a group of dividend paying stocks. The objective of the investment is to create a consistent level of current income assuming as little risk as possible. The income equity fund can be in the form of a mutual fund or an exchange traded fund (ETF). Some investors may choose to create a custom portfolio.

The investor can choose to create an income equity fund by selecting stocks that pay dividends. The portfolio may be composed of the highest dividend paying stocks, or the investor may choose stocks with the highest dividend growth rate. Combination portfolios can be developed to provide the optimal investment objectives and goals.

The income-focused fund typically selects companies in which capital appreciation is not a goal. Growth stocks are not normally selected unless a dual strategy is desired, because they require a greater risk tolerance due to higher volatility. Dual strategy mutual funds and ETFs try to achieve long term capital appreciation while providing consistent dividend payments.

Conservative investors typically favor large, well-established companies. Dividends can be paid on a monthly, quarterly, or annual basis. Mutual funds and ETFs provide a prospectus which includes the company names, the strategy, and a performance track record.

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An income equity fund is focused on equities which are stocks. Other types of funds are more diversified. Stock funds can be domestic or international and some may focus on a particular country. Specialty funds might focus on a particular industry or economic sector, while balanced funds attempt to provide safety with income and capital appreciation.

Diversified funds invest in different types of securities such as stocks, preferred stocks, and bonds. Each type of mutual fund or ETF has a primary objective or strategy. A fund manager is in charge of implementing the strategy and portfolio trading decisions. The track record of the fund manager may be as important as the track record of the fund.

The purpose of creating or investing in an income equity fund is primarily to generate income from the investment. Other factors may influence the investor to explore more diversified funds. A fund focused on income from stocks that pay dividends normally provides a low risk tolerance with moderate current income.

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