An efficient income solution provided through a diversified exposure to predominantly AUD denominated investment grade Australian and global floating and fixed rate bonds.
The Fund’s current indicative distribution rate is 6.55%p.a., paid monthly.
The Premium Income Fund offers retail and wholesale investors the opportunity to invest in a pool of mortgage secured commercial loans made out to small and medium size Australian businesses.
The Fund is an open-ended, unlisted unit trust which aims to provide investors with an exposure to a portfolio of real estate backed loans, secured by first and second ranked mortgages.
The Fund aims to provide regular income with medium risk exposure and targets a return of the RBA Cash Rate plus a margin of 4.0% p.a.
Professionally managed fixed income portfolios for wholesale clients.
A specialist hybrid credit fund targeting superior risk-adjusted returns. (For Wholesale Investors Only)
The iPartners Credit Investment Fund aims to provide investors with a diversified portfolio of high yielding private credit assets including asset backed securities, corporate credit and property debt.
Consistent returns aiming for cash + 1.50%
Consistent returns aiming for cash + 3.50%.
The Mutual Income Fund is a portfolio of debt instruments issued by the major Australian banks and other Australian Authorised Deposit-taking Institutions (ADIs).
HBRD aims to provide investors with attractive monthly income from an actively managed diversified portfolio of hybrids, subordinated bonds, senior bonds and cash. The Fund is overseen by a professional manager that can allocate tactically between these investment types.
The Trust is a leading fixed income product with a highly diversified portfolio of Australian debt assets with a strong bias towards trade and debtor finance and includes a global investor base. (For Wholesale Investors Only)
The objective of the Portfolio is to outperform the UBS Bank Bill Index (0+yr) Maturity (SBCBB) over a three year period.
We have a pure fixed income focus and construct bespoke portfolios/accounts that cater for each client’s individual fixed income investing objectives including liquidity, credit, duration, and diversification (Wholesale Investors Only).
Learn how income funds work, explore different fund types, and understand the distributions, risks and strategies for generating regular investment income in Australia.
An income fund is a managed investment designed to generate consistent income by investing in a range of income-producing assets. Here’s what sets them apart:
These funds are best suited to investors comfortable with fluctuations in income and willing to accept higher levels of credit, equity and liquidity risk in exchange for the potential for greater returns.
As MoneySmart notes:
Investors in such funds buy units in a pooled portfolio and that ‘you could lose some or all of the money you invest.’
In Australia, many income funds are structured as unit trusts and registered as managed investment schemes under the ASIC framework. Licensed fund managers are the responsible entities which operate these schemes, handling the asset selection, portfolio management and distributions on behalf of investors.
Investors purchase units in the fund, with unit prices typically calculated daily or monthly based on the fund’s net asset value (NAV) (assets minus liabilities divided by units on issue). In turn, each fund’s pooled capital is invested according to its stated investment strategy as set out in its Product Disclosure Statement (PDS) and scheme constitution.
Income funds derive their income returns from their underlying assets. Their main income sources are: interest payments from debt, dividends from equities, and rental/loan income from specialist credit or mortgage pools.
Unlike fixed coupon payments from pure bond portfolios, distributions fluctuate, and depend on asset-performance and interest rates.
Each manager typically distributes most or all of the net income (after fees and expenses) to investors. Distribution frequency varies. Some funds pay monthly (popular for cash-flow), while others pay quarterly, semi-annually or annually.
Many also offer a Distribution Reinvestment Plan (DRP) so investors can automatically reinvest payments into new units.
Income fund unit price movements reflect changes in their underlying asset values and any distributions paid.
According to Moneysmart, most income funds in Australia are unlisted (not exchange-traded) which means investors apply directly via the responsible entity rather than buy/sell on a stock market.
Liquidity terms vary. Some funds permit daily redemptions, while others offer monthly or quarterly liquidity, while according to Money Mag, wholesale-only funds often impose longer notice periods or redemption restrictions, especially when exposed to potentially less liquid assets.
Income funds in Australia invest across various asset classes beyond traditional bonds. Understanding the different types helps investors select funds aligned with their income goals and risk tolerance.
Credit and floating-rate funds invest in floating-rate loans and corporate credit, with interest adjusting as market rates (e.g. linked to the BBSW or RBA cash rate). They provide protection against rising interest rates as yields increase and can offer higher yields than traditional bond funds but with higher credit risk.
Many are wholesale-only, and management fees tend to be around 0.60-1.50% p.a.
For example, Betashares Australian Bank Senior Floating Rate Bond ETF invests in senior floating-rate bonds issued by Australian banks. If interest rates increase, so too does the income investors receive.
Mortgage & Secured-Lending Funds provide loans secured by residential or commercial property, charging interest (often floating) and potentially offering higher yields than government or corporate bonds, though with higher credit-risk, property-valuation risk and liquidity constraints. Many are restricted to wholesale investors.
Fees are typically 0.50-1.50% p.a.
For example, CPF Property Debt Fund invests in loans secured by real property in metropolitan Sydney/Brisbane/Melbourne.
Diversified Credit & Multi-Asset Income Funds diversify across income-producing assets such as credit, hybrids, floating debt and equities. Fund managers actively allocate based on market conditions and relative value, aiming to provide more consistent income through diversification. They are differentiated by their broad asset mandate versus bond-only funds. Risk/return profiles vary widely. They may include both fixed and floating assets for rate-cycle flexibility.
Fees are typically 0.70-1.50% p.a.
For example, Prime Value Diversified High Income Fund is a diversified income with medium risk exposure across cash, fixed income, mortgages and other income assets.
Hybrid Securities Funds invest in hybrid securities issued by banks and corporations (with both debt and equity features). They offer higher yields than senior bonds but rank lower in the capital structure. Their differentiator is their equity-like features with an income focus, as opposed to investing only in fixed-interest securities. Income may be franked or partially franked. Distributions can be suspended if the issuer faces financial stress.
Fees are typically 0.50-1.00% p.a.
For example, PURE Income and Growth Fund is an actively managed credit fund that includes debt and hybrid securities with mostly floating-rate structure.
Equity Income & High Dividend Funds focus on the shares of companies paying high dividends as they provide income from dividends rather than interest/coupons. They are differentiated by their equity exposure rather than pure fixed-interest exposure. These funds may include franking credits (and the associated tax benefit). They also tend to exhibit higher volatility than credit-income funds, while their distributions depend on dividend policies and economic conditions. They may provide inflation protection if companies raise their dividends over time.
Fees are typically 0.60-1.20% p.a.
For example, Prime Value Equity Income Fund focuses on Australian equities paying high dividends, aiming for regular tax-effective income.
Cash-Plus & Enhanced-Cash Funds invest in short-term floating-rate securities, bank deposits and money-market instruments. They are differentiated by active short-term-instrument management versus traditional bond portfolios. They aim to deliver returns above cash/term deposits with minimal capital-volatility, have very low duration (interest-rate sensitivity) due to their short-term holdings, high liquidity (daily or weekly redemptions), and lower yields than other income fund types. However, they provide stability and liquidity.
Fees are typically 0.20-0.60% p.a.
For example, Trilogy Enhanced Income Fund invests in cash, term deposits, bills, and fixed/floating debt securities. The fund targets a return of the RBA cash rate + 1.5% p.a.
There are a number of benefits of income funds investors should be aware of.
Income funds typically pay scheduled distributions (monthly, quarterly or semi-annually), enabling more predictable cash flows than relying solely on capital draw-downs. This feature is especially valuable for retirees in the pension phase or pre-retirees who need to align their investment cash-flow with their living-expenses. Distribution regularity allows for better planning and budgeting of recurring expenses, and well-structured funds can meet regular outgoings without forcing investors to sell capital.
When you invest via an income fund, you delegate security-selection, credit assessment, portfolio monitoring and active rebalancing to experienced fund managers.
As the Financial Services Council (FSC) emphasises, professional funds management ‘offers access to a wider range of asset classes and continual management of your portfolio’ which an individual may struggle to replicate.
MoneySmart also notes that using a managed fund means ‘paying a professional to make the investment decisions for you.’
Especially in complex asset classes like private credit or bond-selection, investing via a fund removes the burden of individual security-analysis and gives access to institutional-grade investments not typically available to retail investors.
Income funds aggregate investor funds and deploy them across multiple securities, issuers, sectors and often geographies, thereby reducing the concentration risk that comes with holding a small number of high-yield shares or bonds.
As MoneySmart emphasises: managed funds enable investors to ‘spread your money across different fund managers and funds that invest in different asset classes’ thereby lowering idiosyncratic risk.
For investors with smaller amounts of capital, this diversification benefit is difficult to replicate via direct investments alone, yet remains critical for managing risk while seeking income.
Many income-producing securities, such as wholesale corporate bonds, private credit, mortgage pools or infrastructure debt, require large minimum investments or are only offered to wholesale investors. An income fund structure allows retail investors access to these asset classes, and leverages the negotiation power of the fund manager.
As FSC highlights: access to ‘a wider range of asset classes that individuals may find difficult to access themselves.’ This is a meaningful advantage for income-seeking portfolios that aim beyond standard listed high-yield shares.
Many retail income funds have relatively modest minimums (e.g. $1,000–$25,000) and allow additional contributions over time, periodic investing and optional reinvestment of distributions via DRPs (Distribution Reinvestment Plans). This enables continuous scaling of investment without complex re-structuring. Moreover, DRP features mean that distribution income can compound inside a fund without requiring additional cash-flow from the investor.
Income funds investing in Australian shares may generate fully-franked dividends, which provide franking credits that are especially valuable for low-tax investors or those in the pension phase.
Also, managed funds pass through income, dividends and capital-gains to investors, enabling tailored tax treatment.
For superannuation accounts (which may receive tax-exempt income in pension phase), income fund distributions can align well with tax-efficient structuring.
While income funds offer many benefits, investors must understand the risks involved.
Income fund distributions are not guaranteed and can fluctuate materially, unlike fixed-coupon bond funds. Returns depend on underlying asset performance, interest-rate dynamics and credit conditions.
For example, mortgage or credit funds are exposed to borrower performance and property-market downturns, while equity income depends on corporate dividend policies and economic cycles.
Income funds often span multiple asset types such as credit, mortgages, hybrids, equities, meaning their risk profile is more complex than for pure fixed-income bond funds. Each asset class performs differently under various economic scenarios and interest-rate shifts.
For example, a property market downturn may impair mortgage-backed assets, credit weakness may hit corporate bond holdings, while economic weakness may impact dividend payments.
Income fund investors must understand multiple underlying risks, not just interest-rate and credit risk. As MoneySmart emphasises: ‘successful investors understand the main types of investment risk that can hit their investments and how to manage it through diversification.’
Unlike bond funds which offer fixed coupons, income funds are sensitive to interest rates movements.
ASIC’s guidance reminds investors that fund performance is tied to the value of underlying assets, which fluctuate. Understanding rate sensitivity requires clarity on a fund’s asset mix and how the manager is positioned for upcoming rate shifts.
For example, a floating-rate credit fund may benefit from rising rates via higher distributions while its unit values remain relatively stable. Conversely, funds invested in fixed-rate loans or bonds will suffer from capital-value erosion when rates rise.
Credit risk arises when borrowers or issuers fail to meet their payment obligations. Income funds targeting higher yields typically assume higher credit risk, whether it be via corporate bonds, private credit or mortgage-backed assets. In mortgage/credit funds, borrower creditworthiness and property collateral values matter, while in corporate bond funds, issuer financial deterioration can impair payments and valuations.
Thus, credit risk should be a central consideration when assessing an income fund’s strategy, lending standards and portfolio credit quality.
Some income funds invest in illiquid underlying assets such as private credit, mortgages, and property-backed loans, and may impose limited redemption windows (e.g. monthly or quarterly) or require notice periods (often 30-90 days).
As ASIC points out, pooled mortgage schemes face significant challenges in satisfying withdrawal requests when their underlying loans are long-dated and the market is stressed. Redemption suspensions may occur in these circumstances.
Retail investors should check Product Disclosure Statements (PDS) for liquidity terms and align their fund choices with their investment objectives.
Higher-yielding income funds, especially those accessing private credit or institutional bond markets, are often available only to wholesale investors (e.g., net assets ≥ A$2.5 million or gross income ≥ A$250 000 in the past two years). Retail investors are excluded regardless of their investment sophistication.
A recent ASIC submission noted that many wholesale schemes lack the transparency of retail schemes.
Fees in income funds, especially actively managed ones, can range from ~0.20%-1.50% p.a., plus performance fees in some cases. These fees directly reduce a fund’s net distributions to investors and over time compound significantly.
Investors in income funds should assess the total cost of ownership (management fees, performance fees, entry/exit fees) relative to the fund’s yield and expected return.
Income fund distributions may comprise a mix of interest, dividends (possibly franked), capital gains, and foreign income. The tax treatment of each component varies by investor circumstances.
For example, fully-franked dividends may carry franking credits which are valuable for low-tax investors.
The MoneySmart investor toolkit emphasises the need to understand the tax implications of investment structures prior to investment. As always, seek professional advice when necessary.
Investors may subscribe directly to an income fund via the fund manager’s application process by completing the application form as set out in the Product Disclosure Statement (PDS), providing identification for AML/CTF compliance, and making your initial investment by deposit or cheque.
Ongoing contributions are typically set up via BPAY or direct deposit. Once you’re invested, you’ll also gain access to a fund’s investor portal for statements and performance tracking.
Many income funds are accessible via investment platforms (also called ‘wraps’) such as HUB24, Netwealth or BT Panorama. These platforms consolidate multiple holdings into a single account, simplifying administration, reporting and tax-year statements.
A key benefit is streamlined reporting and easier rebalancing across funds. However, platform fees apply in addition to fund management fees. The total cost of wraps ranges between 0.50-0.60% p.a. for most users.
So for investors holding diversified fund portfolios, platforms offer operational convenience at a cost.
Investing in income funds within superannuation is possible through industry or retail super funds’ investment menus.
In a member-choice super arrangement, you may select one or more income-fund options. This is especially relevant for investors in the pension phase when regular income streams are needed and tax benefits apply.
The concessional tax environment of superannuation adds efficiency, although you are constrained to the fund options offered by your superannuation provider.
An SMSF structure enables trustees to invest directly in most income funds, making this a compelling route for SMSFs in the pension phase seeking tax-free income streams. You must ensure the fund aligns with your SMSF’s documented investment strategy and complies with its diversification and liquidity requirements.
Because SMSF trustees bear investment, compliance and administrative duties, this pathway suits individuals confident in managing a fund, or supported by appropriate advice.
A qualified financial adviser can recommend suitable income funds tailored to your objectives, conduct due-diligence on fund managers, and assist with asset allocation, selection and monitoring.
Advisers may also provide access to institutional fund-classes (often with lower fees or higher minimums) not readily available to retail investors. This advisory route is valuable for investors seeking specialist oversight, though it adds an adviser-cost layer and requires strong alignment between investor objectives, adviser competency and fund strategy.
Selecting the right income fund requires evaluating multiple factors beyond just distribution yield.
Compare historical distribution yields but recognise that past performance is no guarantee of future results.
Review whether a fund’s yield has been maintained or cut over the cycle, understand whether it’s sustainable, and beware of unusually high yields which may signal elevated risk.
According to Moneysmart: ‘Look at long-term returns. A fund’s performance over 5 to 10 years gives you a better indication of how it will perform in the future.’
According to Moneysmart, income-funds require you to ‘understand how different investments work and how to manage them so you can choose the right ones to fit with your goals.’
Review what a fund invests in, its credit quality (for bond/credit funds), its sector/issuer diversification, its interest-rate sensitivity (duration), and ensure its strategy aligns with your income objectives and risk tolerance.
Small differences in fees can have a significant impact on your long-term returns.
Use tools such as Moneysmart’s Managed Funds Fee Calculator to see how annual costs erode returns.
Also, compare management expense ratios (commonly ~0.20–1.50 % p.a.), check for performance fees, entry/exit costs, and calculate the net yield after all fees.
Liquidity matters, so check how often you can redeem units (daily, monthly, quarterly), the notice period, any lock-up or suspension risk, especially in credit and mortgage funds where redemption might be restricted.
As Moneysmart warns: ‘You may not be able to withdraw your money until a certain point in time.’
In short, ensure a fund’s liquidity terms match your cash-flow and income-fund objectives.
Beyond the distribution yield, evaluate how a fund’s unit price has fared, especially during periods of economic and market stress. This is an essential check for income funds aiming to preserve capital as well as deliver yield.
Larger funds often benefit from scale and can be more stable, while very small funds may lack economies or face closure risk.
Also, examine a fund-manager’s long-term track record and the responsible entity’s resourcing. The experience and tenure of key portfolio managers are meaningful signals of capability.
Understand what makes up the distributions: interest, dividends, capital gains, and franking credits (for equity income), as well as their tax efficiency for your circumstances.
Confirm the fund is registered with ASIC, noting whether it is a retail or wholesale-investor fund, and whether it complies with regulatory benchmarks. These give you protections under the law and help avoid inappropriate exposure.
Understanding how income funds compare to other income-generating investments helps inform portfolio decisions.
| Feature | Income Funds | Fixed Income Funds |
| Core Investment Focus | Invest across a diverse mix of income-producing assets – including credit, mortgage loans, floating-rate debt, hybrid securities, and sometimes dividend-paying equities. | Invest exclusively in fixed-interest securities, such as government and corporate bonds, providing predictable coupon payments. |
| Distribution Characteristics | Variable distributions that fluctuate with underlying asset performance and market conditions. | More predictable income from fixed coupon payments on bonds. |
| Interest Rate Sensitivity | Can adapt to rate changes via floating-rate instruments and active asset allocation. | Exposed to interest-rate risk – bond values typically fall when rates rise. |
| Yield Potential | Typically higher yields than traditional fixed income funds due to broader asset exposure and higher risk. | Lower but steadier yields, aligning with lower portfolio volatility. |
| Risk Profile | Higher and more variable risk, depending on asset mix and leverage. | Generally lower risk due to bond-only mandate and greater transparency. |
| Capital Growth Potential | May include capital appreciation through hybrid or equity holdings. | Primarily focused on capital preservation rather than growth. |
| Management Approach | Often actively managed, requiring dynamic asset selection and risk control. | Commonly passively managed or benchmark-tracking with simpler mandates. |
| Liquidity and Transparency | Liquidity varies by asset; some exposures (e.g., private credit) may be less liquid. | Typically highly liquid and transparent, especially for government bond funds. |
| Investor Suitability | Suited for investors seeking higher income and flexible diversification, tolerating greater variability. | Ideal for investors prioritising stability, predictability, and capital security. |
| Example Benchmark / Reference | May use a blended benchmark across credit, hybrid, and cash indices (e.g., Bloomberg AusBond Credit + RBA Cash Rate). | Commonly benchmarked to indices like the Bloomberg AusBond Composite 0+ Yr Index. |
👉 Key Distinction: Income funds trade predictability for flexibility and potentially higher yields through broader asset mandates.
| Feature | Income Funds | Term Deposits |
| Core Investment Focus | Invest across a diverse mix of income-producing assets – including credit, mortgage loans, floating-rate debt, hybrid securities, and sometimes dividend-paying equities. | Bank deposits paying a fixed interest rate for a set term with principal guaranteed (up to $250,000 per authorised institution under the Financial Claims Scheme). |
| Distribution Characteristics | Variable distributions that fluctuate with underlying asset performance and market conditions, often higher than term deposit rates. | Fixed interest payments that do not change over the term, providing predictable returns. |
| Capital Security | No principal guarantee – unit prices may rise or fall with market values. | Capital guaranteed (up to the FCS limit), with no capital fluctuation during the term. |
| Yield Potential | Typically higher potential yields reflecting diversified and actively managed exposures. | Lower returns in exchange for certainty and government-backed security. |
| Risk Profile | Moderate to higher risk, depending on underlying asset mix and market conditions. | Very low risk, suitable for capital protection. |
| Liquidity and Access | Usually more flexible, allowing periodic redemptions (daily, monthly or quarterly, depending on fund). | Inflexible – early withdrawals incur penalties or lost interest. |
| Tax Treatment | More complex – distributions may include interest, dividends, capital gains or tax-deferred components. | Simple – interest income only, taxed at the investor’s marginal rate. |
| Management Approach | Actively managed by professional fund managers who select and adjust diversified income assets. | Managed by banks under APRA regulation with a passive, fixed-rate structure. |
| Capital Growth Potential | May include capital appreciation through hybrid or equity exposures. | None – returns are limited to fixed interest income. |
| Investor Suitability | Suitable for investors seeking higher income and diversification with tolerance for variability. | Ideal for investors prioritising capital preservation and certainty over higher returns. |
👉 Key Distinction: Income funds offer higher potential returns through diversified, actively managed assets, while term deposits provide guaranteed capital security and fixed returns at the cost of flexibility and growth.
| Feature | Income Funds (including Equity Income Types) | High-Dividend Shares |
| Core Investment Focus | Invest across a diverse mix of income-producing assets – including equities, credit, hybrids, and floating-rate debt – for steady income. | Direct ownership of listed companies that pay dividends, often concentrated in specific sectors such as banks or resources. |
| Distribution Characteristics | Regular, diversified distributions from multiple income sources designed for stability. | Dividends fluctuate with company earnings and may be cut or suspended during downturns. |
| Capital Security | No capital guarantee, but diversification helps reduce volatility compared to individual shares. | No capital guarantee, with full exposure to share market volatility. |
| Yield Potential | Moderate to high yields, depending on market conditions and fund strategy. | Can offer attractive dividend yields, particularly from mature companies, but less predictable. |
| Risk Profile | Moderate risk, spread across multiple assets and sectors under professional management. | Higher risk, tied to individual company performance and sector concentration. |
| Liquidity and Access | Units can typically be redeemed periodically (daily, monthly, or quarterly depending on fund). | Highly liquid, as shares can be bought or sold on the stock exchange at any time. |
| Tax Treatment | Mixed components – interest, dividends, capital gains, and sometimes franking credits. | Eligible for franking credits, enhancing after-tax income for Australian investors. |
| Management Approach | Actively managed by professional portfolio managers focused on stable income and risk control. | Self-directed, requiring investor skill in stock selection, diversification, and monitoring. |
| Costs | Management fees apply, typically 0.5–1.5% p.a. depending on structure and strategy. | No management fees, but brokerage costs and potential capital gains tax may apply. |
| Capital Growth Potential | May offer modest capital growth through equity and hybrid exposure. | Provides full participation in market upside alongside income generation. |
| Investor Suitability | Best suited for investors seeking managed diversification and steadier income with less volatility. | Suited for investors comfortable with market risk and hands-on portfolio management seeking income and growth. |
👉 Key Distinction: Income funds offer diversified, professionally managed income with lower volatility, while high-dividend shares provide direct ownership and franking benefits but with greater market risk.
Understanding the tax treatment of income funds is crucial for after-tax return maximisation.
Income funds may distribute interest, dividends (with franking credits), foreign income, capital gains or tax-deferred amounts. Each has a distinct tax treatment. Your annual AMMA or distribution statement will detail the components.
According to the ATO: ‘You must show any income or credits you receive from any trust investment product in your tax return.’
Interest from fixed income funds is taxed at your marginal tax rate, with ‘no special concessions or discounts’ according to the ATO.
When you hold Australian shares via an income fund, dividends often include franking credits. You must declare both the dividend and the franking credit. These franking credits can reduce your tax liability and may result in refunds if you’re in the pension phase or a lower-tax bracket.
Funds may distribute capital gains when assets are sold.
According to the ATO: ‘If your only capital gains are from managed funds you will need to complete the Capital gains or losses section.’
Assets held longer than 12 months may qualify for the 50 % discount for individual taxpayers.
International investing income is assessable.
According to the ATO: ‘Investment income may include foreign income. You must also declare interest from foreign sources and you can claim a foreign income tax offset for any tax paid on this income.’
The foreign income tax offset (FITO) may mitigate double taxation.
Some funds include tax-deferred components (commonly property/trusts). These are not taxed when received but reduce your cost base, increasing future capital gains when you sell.
According to ANZ: ‘Tax-free and tax-deferred amounts are not included in an investor’s assessable income at the time of distribution.’
In the pension phase for a Self-Managed Super Fund (SMSF), income and capital gains may be tax-exempt and franking credits fully refundable, making high-yield income funds more tax-efficient.
N.B. Detailed SMSF rules are beyond the scope of basic fund tax statements.
According to the ATO: ‘You must show any income you receive or credits you are entitled to from any trust investment product in your tax return.’
So keep all AMMA/statements, unit prices, tax-deferred details and retain these records for at least 5 years after lodging your return.
There are six main income funds investors should be aware of.
This is a foundational income allocation via conservative fixed income or bond funds, typically 40-60 % of the income portfolio, which provides a stable, predictable income base with lower volatility compared to equity income funds. It suits retirees prioritising capital preservation.
For example, Affluence Income Trust is designed for use as a core holding seeking income and capital preservation with a one year or longer investment timeframe.
This combines a fixed income core strategy with higher-yielding credit or mortgage funds to target a higher overall portfolio yield. It is typically structured as ~60-80 % lower-risk income + ~20-40 % higher-yielding credit. It accepts increased credit risk for additional income.
For example, Real Income Fund targets a return of the RBA cash rate +4.0% through exposure to Australian secured credit.
This strategy allocates across multiple income-fund types including fixed income, equity income, mortgage, and hybrid to diversify income sources and reduce single-strategy risk. The varied distribution sources support income stability, so this is suitable for moderate-risk investors seeking a balanced approach.
For example, RAM Australian Diversified Fixed Income Fund invests in bank capital securities and Australian bonds with the aim of regular income streams with low capital volatility.
This emphasises equity income funds with franking credits, which is especially relevant for retirees in low tax brackets or pension-phase SMSFs. While its yield might be slightly lower, the after-tax income may be higher thanks to the value of tax-refundable franking credits.
For example, Hamilton12 Australian Shares Income Fund generates attractive after-tax returns via a gross dividend yield (including franking) that exceeds its benchmark.
This strategy constructs a series of income funds (or underlying bonds) with different liquidity profiles (e.g. some with immediate access, others with longer notice periods) so you maintain access to some capital while capturing higher yields on less-liquid tranches.
This blends income funds with growth-oriented investments (e.g. 40-60 % income funds + 40-60 % growth assets), enabling current income streams while preserving long-term capital appreciation potential. This is suitable for pre-retirees transitioning into the income phase.
There are also a number of common mistakes investors should avoid when investing in income funds.
Unusually high yields often signal elevated underlying risk.
For example, high-yield credit funds offer attractive returns but come with hidden risks, such as default exposure and liquidity constraints. Before investing, assess credit quality, liquidity risk and capital risk — not just the headline yield.
Liquidity mismatch can trap investors.
So ensure a fund’s redemption terms suit your cash-flow needs and avoid investing emergency funds in illiquid vehicles.
Small fee differentials compound over time. Even a ~1 % p.a. excess fee can significantly erode your long-term after-fee return.
According to Morningstar: ‘Managed fund fees are a key predictor of future returns. The cheaper quintile of funds out-performed the priciest quintile.’
Managed funds remain one of the most accessible investments, but they involve fees and tax leakage. Making tax efficiency part of your selection process is crucial.
Relying on historical yields is risky as past performance may not be indicative of future results.
Interest-rates shift and economic cycles change credit conditions, so yield streams aren’t guaranteed.
Concentrating in one income strategy increases risk. Spread across fund types, asset classes and managers to reduce strategy-specific risk.
Failing to check investor status and protections can expose you to additional risks. Retail vs wholesale fund distinctions and regulatory protections are major issues to be aware of.
So ensure you understand whether a fund is wholesale-only, what protections you have, and whether you meet the eligibility criteria.
Income funds invest across a broad range of income-producing assets including floating-rate credit, mortgages, hybrids, high-dividend equities, and other income-generating securities. They have variable distributions that fluctuate based on underlying asset performance and can adapt to interest rate changes through their flexible asset mandate. They typically offer potentially higher yields but with more variable returns and higher risk.
Fixed income funds (covered on our Fixed Income Investments page) invest exclusively in fixed-interest securities like government and corporate bonds. They provide more predictable income from bond coupon payments and are generally considered more stable and lower risk, though subject to interest rate risk where bond values fall when rates rise.
The key difference is: income funds trade the predictability of bond-only portfolios for the flexibility and potentially higher yields of diverse income assets.
Yes, income funds carry capital risk across their diverse asset holdings. Unit prices fluctuate based on the value of underlying assets. If you redeem your units when the unit price has fallen below your purchase price, you will realise a capital loss.
Credit and mortgage funds face borrower default risk. Equity income funds experience share market volatility. Floating-rate funds maintain more stable capital values but distributions vary with rate changes.
The broader asset mandate of income funds means multiple risk factors can affect capital values simultaneously.
Distribution frequency varies by fund. Monthly (most common for cash flow purposes), quarterly, or semi-annual distributions are common.
Most funds pay distributions directly into your nominated bank account on the distribution payment date.
Distribution amounts vary significantly based on the fund's earnings from its diverse income assets and are not guaranteed to remain constant. This variability distinguishes income funds from the more predictable coupon payments of fixed income bond funds.
Some funds offer Distribution Reinvestment Plans (DRPs) allowing automatic reinvestment of distributions to purchase additional units without transaction costs.
Retail income funds are available to all investors and subject to comprehensive regulatory requirements including Product Disclosure Statements and responsible entity obligations. Wholesale income funds are restricted to investors meeting specific criteria: net assets of at least $2.5 million or gross income of at least $250,000 in each of the past two years. Wholesale funds often offer higher yields but have fewer regulatory protections. You must genuinely meet the wholesale criteria. Fund managers require certification.
Yes, income funds can be held in super funds and SMSFs. Many industry and retail super funds include income fund options in their investment menus. SMSFs can invest in most income funds directly. Income funds are particularly attractive for SMSFs in the pension phase as income distributions are tax-free. For accumulation phase super, income is taxed at concessional 15% rate. Ensure the fund accepts superannuation investors by checking the PDS.
Income fund distributions typically comprise multiple components with different tax treatments.
Interest income is taxed at your marginal rate. Dividends may include franking credits. Capital gains may be eligible for CGT discount. Foreign income may provide foreign tax offsets. Tax-deferred amounts reduce your cost base.
Each fund provides an annual tax statement (AMMA statement) detailing all components. Most funds pre-fill this data into ATO systems.
Tax treatment varies significantly based on individual circumstances, so consider seeking professional tax advice.
Minimum investment varies significantly by fund. Retail income funds typically require $1,000 to $25,000 initial investment. Wholesale income funds commonly require $250,000 to $500,000 minimum. Platform investments may have lower minimums but platform fees apply. Some funds allow additional investments with lower minimums after initial investment. Check the Product Disclosure Statement for specific minimum investment requirements.
Yes, certain income fund types (particularly mortgage and credit funds) can suspend or restrict redemptions during periods of market stress or if insufficient liquidity exists to meet redemption requests. This is more common in funds investing in illiquid assets like mortgages or private credit. The fund’s constitution and PDS outline circumstances when redemptions may be suspended. Retail income funds must act in members' best interests when considering suspensions. Check the fund's redemption policy and historical track record before investing.
Interest rate impact varies significantly by fund asset composition. This is a key difference versus fixed income bond funds.
For example:
Income fund managers may adjust asset allocation between fixed and floating-rate assets to optimise for the interest rate environment, providing more flexibility than pure fixed income bond funds.
Income funds offer Australian investors a professionally managed approach to generating regular investment income across diverse asset classes and strategies. Their combination of distribution frequency options, diversification, and accessibility makes them suitable for retirees seeking cash flow, SMSFs in the pension phase, and conservative investors prioritising income generation.
However, income funds are not one-size-fits-all. Success requires understanding your income objectives, cash flow timing needs, risk tolerance, and investment timeframe. Distribution amounts typically vary and are not guaranteed, while capital values fluctuate based on underlying asset performance. Carefully comparing fund strategies, fees, liquidity terms, and tax implications is essential before investing.
The Australian income fund market offers extensive choice across fixed income, equity income, credit, mortgage, and hybrid strategies. Whether building a conservative bond-focused income portfolio or implementing a diversified multi-asset income approach, the key is matching a fund's characteristics with your specific circumstances and maintaining realistic expectations about returns and risks.
Always review the Product Disclosure Statement before investing, understand the responsible entity's experience and track record, and consider seeking professional financial advice tailored to your personal situation, particularly regarding tax treatment and portfolio construction.
General Advice Warning: The information provided on this page is general in nature and has not been tailored to your personal objectives, financial situation, or needs. Before making any investment decision, you should consider the appropriateness of the information having regard to your circumstances. You should obtain and review the relevant Product Disclosure Statement (PDS) and Target Market Determination (TMD) and consider seeking independent financial, legal, and tax advice.
Tax Advice: Tax laws are complex and subject to change. The tax treatment of income funds depends on individual circumstances, including the specific fund invested in and the components of distributions. You should seek professional tax advice from a qualified accountant or tax adviser before investing in income funds.
Not Financial Advice: InvestmentMarkets does not provide personal financial advice. All content is for educational and informational purposes only. Consider seeking advice from a licensed financial adviser before making investment decisions.
Distribution Variability: Income fund distribution amounts typically vary and are not guaranteed. Past distribution rates are not indicative of future distributions. Distribution yields quoted are before fees and taxes and may not reflect actual returns received by investors.
Capital Risk: Income fund unit prices fluctuate. Capital is not guaranteed and you may receive back less than your original investment when you redeem units. Income funds are generally suitable for investors with medium to long-term investment horizons who can tolerate capital fluctuations.
Wholesale Investor Restrictions: Some income funds are available only to wholesale or sophisticated investors who meet specific financial criteria. These funds are not subject to the same regulatory requirements as retail funds. Ensure you meet eligibility criteria and understand the implications before investing in wholesale funds.
