However, they may also advance at a slower rate in a rising market. A dual purpose mutual fund invests equal dollar amounts in each of two types of shares, income and capital. Income shares are redeemable at a stated time and price. Income shareholders do not receive any part of the fund's capital growth. Capital shareholders, on the other hand, receive no periodic income, but are entitled to all the company's assets after the company terminates and the income shareholders have been reimbursed.
Bond funds invest only in debt instruments, usually either corporate bonds or government bonds.
Due to the relatively stable returns of these investments as a portfolio base, these funds are generally exposed to less risk than others. Since risk is commensurate with the potential for gain, these investments are not likely to provide exceptional income or gain. Your income may be relatively stable and the underlying obligations may be guaranteed, but that will not help you if you need to liquidate your shares quickly in an emergency and the market is down. The bonds could be called, removing a source of income from the fund. You may also receive back a portion of your principal when bonds are called, so it is important to have a reinvestment system in place if you invest in a bond fund.