As the name suggests, income funds are funds that invest in a manner, so as to provide income for the investor.
These funds may invest in debt, as well as equities, but, mostly they would tend to be towards good quality debt.
Could be aggressive
As mentioned earlier, the funds could be aggressive as well as very conservative. It depends on the objective of the fund. These funds could also invest in real estate investment trusts and junk bonds that are not highly rated. However, in India one does not hear fund managers, chasing real estate investment trusts.
In any case, the objective is to earn good yields for investors and probably, where the real rate of returns is positive. Real rate of returns is positive when the yield beats inflation.
An important point to note, as far as income funds is concerned is that, they need not necessarily distribute the amounts earned at regular intervals. One needs to study the distribution pattern and the objective of the fund very clearly.
Should you invest in income funds?
One has to understand one's own needs, before investing in income funds. The best way would be to study the prospectus and find out the objective of the scheme. For example, if the fund will distribute dividend regularly, and you are a retired individual, you might want to opt for the same. On the other hand, if you feel that there is unlikely to be a regular dividend, you can skip the same.
Also, if you are young, you might want a fund that is more aggressive, rather than conservative. So, you might not want an income fund altogether.
Income funds are funds that offer a little more variety to the mutual fund business. Look to invest in them only if you need money regularly and if the debt profile of the investment is sound.