Among mutual funds, those that invest in stocks are less suitable as a source of income compared to those that invest in fixed-income assets. Fixed-income assets mean bonds and deposits, issued either by companies or by banks.
Such funds, which we call 'Fixed-Income Funds' or 'Debt Funds' are suitable for generating regular income because they have a relatively lower risk and higher predictability of returns compared to those that invest in stocks. Since they are comparatively safe and predictable, they are apt to invest for a short-term, even if you want to accumulate the returns instead of withdrawing them as regular income. Although debt funds are quite similar to each other, they come in several subtypes with subtle differences that make them suitable for different purposes.
This article was originally published on January 31, 2017.
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