Equity Income Mutual Funds: Balance Growth & Income

Equity-income mutual funds balance their holdings between bonds and dividend paying stocks. The goal of the funds is to provide two, equally desirable results: capital growth in the long run and income in the short run. Some mutual funds focus on one goal or the other, so this blend is not true of all investment opportunities. However, most investment houses will offer some type of equity-income fund because they are used for a number of applications.

Uses for an Equity Mutual Fund

The primary use for an equity mutual fund is saving for a long-term investment. For example, equity funds can be used for nest egg accounts, college savings accounts, trust funds and retirement accounts. These funds provide little to no income in the short-run, but the goal is to grow over time so the investor can eventually make a large profit. Equity mutual funds hold capital growth shares; these include low-dividend, high-growth stocks. Stocks that undergo splits can rapidly build the equity in this type of mutual fund.

Uses for an Income Mutual Fund

An income mutual fund can be used at any period in life to supplement a regular income while still saving money for the future. Many families use income mutual funds for their savings. They are able to produce a slightly higher income during what are considered to be the most expensive years in life. At the same time, the family's savings remain untouched, providing them with some stability and guaranteed security in a financial emergency. Many mutual funds are very focused on income, paying out capital gains nearly immediately as income to investors. These funds can be a great option for a person going back to school later in life, looking for supplemental income while attending a higher degree program.

Uses for an Equity-Income Mutual Fund

An equity-income mutual fund is ideally the best of both worlds, providing growth in the long run and a modest income in the short run. Individuals using this option range from many different areas of life and have a variety of financial goals. Perhaps the goal is saving for retirement but supporting a family in the meantime, for instance. An equity-income fund would have a combination of corporate stocks and government bonds. The stocks would, ideally, split and grow over time, increasing the value of the portfolio. The bonds would provide a constant yield even though the principal sum grows very little.

Cons of an Equity-Income Mutual Fund

Some critics of the equity-income option theorize the funds are not specialized enough. Their ability to provide either capital growth or income may be compromised in their goal to reach for both outcomes. Some investors prefer to simply place their money into two different types of mutual funds, one focused on growth and one focused on income. The idea behind this strategy is to give the fund's manager complete free-reign to pursue one goal. A growth fund will usually attempt to employ a manager seasoned in growth opportunities; an income fund will also seek a specialist. To pursue this option, though, an investor will have to place more money into the mutual funds to meet minimum investments in each.