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How to invest for income with unit trusts

by , 18 May 2015

Unit trusts provide you with an easy way to invest in a number of different assets. You can use them to invest in different types of equities, money market funds and bonds.

If you're looking for a lower risk option to generate an income, unit trusts have the solution.

Let's take a closer look…

Investing in income funds

Income funds are unit trusts that focus on generating an income. They achieve this through investing in different bonds.

There are generally two types of bonds: Government bonds and corporates bonds.

Government bonds
Governments issue these bonds. When you buy these bonds, you’re lending the government money. These are low-risk investments.

Corporate bonds
Large companies issues these bonds. When you buy these bonds, you’re lending the company who issues the bond money. These come with a higher risk than government bonds and the risk associated with the bond will depend on the issuing company.

When you buy bonds, by lending the government or company money, you receive interest payments twice a year. When the bond matures, the government or corporation returns the face value of the bond.

Why invest in income funds

Building a diversified portfolio of bonds is time consuming and you’d have to invest a significant amount of money. By opting to invest in income funds instead, you’ll gain instant diversification at a much lower cost.

The fund manager will invest in different government and corporate bonds. And you can benefit from the income these bonds generate.

You can either pay a monthly amount into an income fund or a lump sum.

Income funds are a low risk investment option. If you want to generate an income and don’t want to take on high levels of risk, income funds are a good option. They’re also a good option for retirement savings.

So there you have it. How to invest for income with unit trusts.

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How to invest for income with unit trusts
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