Income fund

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Income fund is a fund whose main objective is to pay interest, dividends, capital gains, option income or a combination of these. An income fund may be a mutual fund, a closed end fund, an exchange traded fund, an exchange traded note or an offshore fund. The intent is to distribute the earnings to the investor as income, for actual use or for reinvestment for more shares. Most investors use these forms of securities for monthly living expenses. If the investment has bonds, the income is interest. It is taxed as ordinary income (unless held in a tax advantaged account, such as an IRA). If it holds dividend paying stock, the dividends are taxed according to the tax regime in force at the time of receipt - today that is a tax rate of 10% or 15%, with the recent addition of a 3.8% federal tax for the new health care act. If the income is from capital gains, the tax rates are the same as for dividends if the gain is from an investment held for more than one year. Otherwise it is short term capital gain, taxed at ordinary tax rates. If the income is from options, then it is taxed as ordinary income. Capital gains may be present in a mutual fund or CEF; it is rare in an ETF. The distribution is net of any fees charged by the investment company.

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