All capital, the cash you stump up at the beginning, is returned in full at the end of the term. You won't lose your cash with a guaranteed income bond but current yields are extremely low. The next step up in the risk spectrum is the corporate bond fund, which can be sheltered under the tax-free Isa umbrella. They pay a guaranteed rate of interest over a fixed number of years, then repay their issue price. However, you have to be very careful about which corporate bond funds you choose as some are more risky than others.
Funds paying higher rates usually generate the extra income by investing in more risky bonds.
Look carefully too at how the company takes its charges - many companies take their annual charges from your capital, not your income. The safest strategy is to only consider bond funds which invest in bonds, preference shares or convertibles from big blue-chip companies. Rising income To gain a rising income, you may need to build up a mixture of corporate bonds and equity funds. The corporate bonds should pay out an income in the short term, and the equity funds kick in after say, three years or so. This means looking at income unit trusts.