Do mutual funds pay interest? Well, this question comes across the minds of many investors who decided to not take any risk while investing in direct equity. Instead, they opt to invest in mutual funds to get inflation-adjusted returns at minimal risks. This return could be in the form of capital gains or dividend distributions. And the interest earned by a fund’s asset gets through dividend distribution.
If you are planning to invest in mutual funds just to get an interest on the fund, then you need to know what kind of mutual funds pay interest to the investors. In this article, we will help you in understanding the types of mutual funds that pay interest.
Here, are the mentioned details of the points we are going to discuss it here:
- Bond Funds
- Balanced Funds
- Money Market Funds
Types of Mutual Funds that Pay Interest
It is true some mutual funds pay interest. Not all! But, it depends on the assets held in a portfolio. The types of mutual funds that pay interest are as follows:
Bonds funds also called debt funds are funds which invested primarily in bonds and other debt instruments such as government bonds, corporate bonds, municipal and convertible bonds, and other debt securities.
In short, it is a type of mutual fund that invests solely in bonds. Investors usually participate in the interest paid by the underlying bond securities held. However, not all of them pay interest but the majority of them actually do. Each security from the portfolio pays a certain amount of interest each year which also known as coupon rate. The interest varies with the investments in the funds.
As the name suggests, the balanced fund is a fund which includes both equity and debt securities. These funds are also known as hybrid funds. By keeping a balanced ratio of placing equity assets and debt assets in a fund’s portfolio, one can get an interest from both debt assets and dividend payments from investments in the stock market.
Money Market Funds
Money market funds are also a type of mutual fund which invests in corporate or government debt, but only in very short-term issuances that mature in less than a year. Like the above two, the money market funds also pay some annual interest to the investors as dividend distributions.
Money market funds are recognized as a most stable type of mutual fund since they invest in government bills and highly-rated corporate debts with maturity less than three months.
Final Thoughts: –
In a nutshell, not all mutual funds can give you timely interests but the ones we mentioned above can actually do. So, if your requirement is to get interests on mutual funds then you can opt for any one of those.
Nevertheless, it is up to you. But, if you have any query or would like to add something then doesn’t forget to mention in the comment section below.
Also Read: List of Top 10 Investment Options in India