What is Income Mutual Funds, Benefits & Returns

What is Income Mutual Funds

Income Mutual Funds are the type of Debt Mutual Fund that helps to get regular income from the investment. This is particularly aimed for investors who want regular income to cover their expenses after retirement. Income Mutual Funds invest in debt instruments like corporate bonds, government securities, certificate of deposits, money market instruments. You can get better returns in Income Mutual Funds compared to Fixed Deposits.

Let us understand Income Mutual Funds in more detail.

What is Income Mutual Fund?

  • Income Mutual Fund is a type of Debt Mutual Fund that invest in debt instruments with the main goal of generating regular income for investors
  • These mutual funds are best suited for retired people who want regular income for their expenses and day to day activities.
  • You can get anywhere between 6% to 9% annual returns from income funds
  • The returns are better than savings account interest or Fixed Deposits that barely beat the inflation rate
  • The Income Mutual Funds generate interest by holding the debt instruments up to their maturity. They also generate profits by selling the debt instruments when their value goes high in the market
  • You can also read about All Types of Mutual Funds here

How Income Funds Work?

The working of Income Mutual Fund is quite simple:

  • The fund manager allocates the total assets of the fund in debt instruments like government securities, corporate bonds, certificate of deposits and money market instruments which have low risk compared to equities
  • The interest earned from these debt instruments are maximized by holding them for longer duration, up to their maturity period
  • Capital gains are also made by selling the debt instruments when the value of these instruments in debt market goes high
  • Since the investments are in debt instruments, the risk involved is low compared to equity mutual fund
  • Regular income is generated for investors either via interest earned or capital gains made after selling the debt instruments

ALSO READ: What are Money Market Mutual Funds?

Benefits of Income Mutual Funds?

There are multiple benefits of investing in Income Mutual Funds:

  • Low Risk: Since Income funds invest in Debt instruments, they have low risk in nature. The debt instruments selected are of high credit rating companies that are less known for defaulting the interest payments on the money borrowed, hence they are less risky in nature
  • Regular Income: Income Funds are also called Regular income mutual funds because their goal is to provide regular income from your investments. Usually a lump sum investment can be made by you after retirement to reap the benefits of regular income from these funds. Manu Income mutual funds provide monthly or quarterly payout in the form of interest, but the amount is not guaranteed always and can be changed based on the returns generated
  • Capital Protection: Due to the income fund’s exposure to debt instrument, these funds tries to protect your capital invested, unlike equity mutual fund where the capital invested can be lost in short term
  • Low Cost: The expense ratio of income mutual funds is quite low since these do not engage in buying or selling of stocks in stocks market actively. Investment in debt markets usually involves low cost
  • Better Returns: Income funds provide better returns compared to savings account and fixed deposits. The returns can range anywhere between 6% to 9% annually based on the debt instruments selected by fund manager

Mutual fund Returns Calculation Video

Below is the video on Mutual Fund returns Calculation. This will give you the basic idea of how returns are calculated in any mutual fund:

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Taxation on Income Mutual Funds

Like other mutual funds, income mutual funds are also taxed based on the regular income you receive from these funds.

There are two types of Capital Gains in Debt mutual funds:

  • STCG: Short term capital gains are made when investments are sold within 3 years after buying
  • LTCG: Long term capital gains are made when investments are sold after 3 years of buying

In case the income fund has less than 35% of equity, than irrespective of STCG or LTCG made using income funds, the total profits will be added in your income and taxed as per income tax slab rates

If the income fund has equity allocation between 35% to 65%, than STCG will be taxed with income tax slab rate after adding the profits in income and LTCG will be taxed at flat 20% after the benefit of indexation.

Best Income Mutual Funds in India

Some of the best Income Mutual Funds (or Monthly Income Plan) are:

  • ICICI Prudential Monthly Income Plan
  • ICICI Prudential MIP 25
  • Invesco India Regular Savings Fund
  • Baroda Pioneer Conservative Hybrid Fund

Please note that, above funds have given good returns in the past, but it does not guarantee future returns, so consult a financial advisor before taking any investing decision.


    So Income Mutual Funds provide us regular income and are also called as regular income mutual funds. They invests in debt instruments including corporate bonds, government securities, certificate of deposits, money market instruments, etc. and hence have low risk compared to equity mutual funds.

    Income funds provide better returns compared to savings account interest and fixed deposits and can range between 6% to 9%. Usually the returns are made from interests earned after holding the debt instrument up to maturity period or by selling the debt instruments if it’s value is high in the market.

    Some more Reading:

    Frequently Asked Questions

    What are Income Funds?

    Income funds are the type of Debt Mutual funds that provide regular income by investing in corporate bonds, government securities, certificate of deposits, money market instruments and other debt products. The main goal of income funds is to provide regular income to investors during their retirement phase to meet their expenses.

    Is it good to invest in income fund?

    Income funds are best suited for those investors who have lump sum amount and want decent returns to meet their monthly expenses. Income mutual funds exactly does that of providing regular income (which may not be fixed), every month or quarter and that is why it is good to invest in income fund when you are looking for regular income in your retirement phase. Please note that the income earned every month or quarter might not be stable, depending on the performance of the fund.

    Are income funds risky?

    Income mutual funds are less risky compared to equity mutual funds or equities that you buy in stock market. Since income funds invest in debt instruments which have relatively low risk, income funds can be considered as low risk funds that tries to provide you decent returns on your investments.

    Who should invest in income fund?

    Investors who are looking for regular income after their retirement can invest in income funds to meet their expenses and other day to day activities. Conservative investors are best suited for income funds to protect their capital invested and earn regular income from these funds, however the interest income earned might not be stable and will be based on the performance of the income fund.

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    Income Tax Calculator App – FinCalC

    For Income Tax Calculation on your mobile device, you can Download my Android App “FinCalC” which I have developed for you to make your income tax calculation easy.

    What you can do with this mobile App?

    • Calculate Income Tax for new FY 2023-24 and previous FY 2022-23
    • Enter estimated Investments to check income tax with Old and New Tax Regime
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    • Know how much to invest more to save income tax
    • More calculators including PPF, SIP returns, Savings account interest and lot more
    Download Income Tax Calculator APP from play store
    Download Income Tax Calculator APP from play store

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