As a financial advisor, you often need investment vehicles that can produce regular cash flow for your clients without abandoning growth entirely. Income funds sit in that middle ground. They pool investor money and buy a mix of income-producing securities, so unitholders can receive distributions, often every month.
In this article, Wealth Professional will discuss what an income fund is and how popular Canadian monthly income funds work in practice. Plus, you can scroll to the end of this article to see current income fund news, ready for you to bookmark, revisit, and share with your clients!
An income fund is an investment fund that focuses on paying ongoing income to unitholders, rather than maximizing capital gains. It does this by holding securities that generate interest, dividends, or other forms of cash flow. Common holdings include:
Unlike a pure bond fund or a pure equity fund, many income funds combine stocks and bonds to draw on the strengths of both asset classes. The equity portion often emphasizes companies with a track record of paying dividends.
The fixed income portion usually provides interest payments and can help dampen volatility. For your clients, that blend can mean:
Income funds can be organized as exchange-traded funds (ETFs) or mutual funds. In all cases, investors are more focused on the cash flow they receive than on trading the fund frequently. Find out other investment fund categories aside from income funds in this clip:
Want to be an award-winning financial advisor in Canada? Try to recommend income funds as a way to generate a steady and reliable cash flow for your clients.
TD Monthly Income Fund is one of the well-known Canadian income funds. Its stated objective is to provide a consistent level of monthly income, with capital appreciation as a secondary goal, by investing mainly in income-producing securities.
To pursue that objective, the fund:
The product benchmark combines:
This confirms that the fund is designed as a balanced solution, with exposure to both stocks and bonds while emphasizing income.
BMO Monthly Income Fund has been in operation since 1999 and is marketed as a balanced solution that generates cash flow while still seeking growth. Its documented objectives are to provide a fixed monthly distribution and to preserve the value of the investment.
According to BMO Global Asset Management, the fund:
The benchmark for BMO Monthly Income Fund is an equal blend of the S&P/TSX Composite Total Return Index and the FTSE Canada Universe Bond Index. This signals an approximate 50/50 split between Canadian stocks and bonds over time.
From your clients' perspective, BMO Monthly Income Fund can be considered when they:
CIBC Monthly Income Fund is another Canadian option for investors who want steady distributions along with capital preservation. CIBC describes the fund's investment goal as providing a reasonably consistent level of monthly income while attempting to preserve capital, by investing mainly in a diversified portfolio of debt and equity instruments.
For financial advisors, CIBC Monthly Income Fund can be useful when your clients:
As with other bank-sponsored income funds, distributions can include interest, dividends, capital gains and return of capital. Over time, you need to monitor whether the distribution aligns with the fund's actual earnings so that your clients understand any return of capital component.
RBC Monthly Income Fund is part of the RBC Global Asset Management line-up. The fund's stated objective is to provide relatively tax-efficient monthly distributions from:
It also seeks the potential for modest capital growth while aiming for as high a regular monthly income as possible. For your clients, RBC Monthly Income Fund is often considered when they:
Manulife Dividend Income Fund focuses on dividend-paying equities. The underlying fund objective is to provide a combination of income and capital appreciation by investing primarily in a diversified portfolio of Canadian dividend-paying common and preferred shares.
The fund can also hold real estate investment trusts and royalty trusts. For your clients, Manulife Dividend Income Fund functions less like a balanced fund and more like an equity income solution. It might be suitable when they:
Because it is equity-focused, you need to position this fund alongside other holdings in a way that respects your clients' risk tolerance and income needs.
In Canada, the term retirement income fund often brings to mind the Registered Retirement Income Fund (RRIF). However, an RRIF is not an investment fund in itself. It is a registered plan that holds investments and turns your clients' Registered Retirement Savings Plan (RRSP) savings into taxable retirement income.
According to the Canada Revenue Agency (CRA), an RRIF is a contract between an individual and a carrier that has been registered for tax purposes. RRSP assets and some other registered savings can be transferred into an RRIF, and the carrier then makes periodic payments to the investor.
Below are three rules that are vital for your work as a financial advisor:
Income funds fit into this picture as holdings inside the RRIF. Many retired clients appreciate monthly distributions from mutual funds. Those distributions, along with required withdrawals, can form part of a structured retirement paycheque.
Discover other retirement income sources in this video:
Want to help your clients prepare for the future? Here are seven ways to prepare for retirement.
Short answer: yes. However, income funds are not a cure-all. Still, they are a smart way to deliver regular cash flow while keeping your clients invested in a diversified mix of securities.
An income fund pools bonds, dividend-paying equities, and other income-producing assets. In turn, your clients can receive monthly or quarterly distributions instead of managing each holding on their own.
When you match the right income fund to the right client, you can:
The next step is to line up each client's goals, time horizons, and tax situations with specific products. With this, you can build plans that give your clients the income they need today while keeping an eye on long-term sustainability.
Here's how to identify that fund, and quantify it for clients.
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