The aim of any income fund, not surprisingly, is to provide investors with regular income payments while protecting capital. Of course, this type of fund is useful not only to people seeking additional income.
Income funds are also a good choice for adding diversification to any investment portfolio.
They invest mainly in, or in some combination of, bonds, debentures, and mortgages. A bond is a certificate of indebtedness recording the amount of the loan and the terms of repayment. In other words, the issuer does not put up any specific assets to assure repayment of the loan. Bonds are bought in either the primary or secondary markets. After a bond has been issued and sold to investors in the primary market, it can then be traded in the secondary market.