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How do I Choose the Best Managed Income Fund?

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  • Written By: K. Kinsella
  • Edited By: Allegra J. Lingo
  • Last Modified Date: 20 April 2020
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A managed income fund is a type of mutual fund from which investors receive regular dividends. There are several factors to take into account when selecting a managed income fund, such as the fund strategy, fee structure, and performance history. You need to determine how much income you need, your risk tolerance, and time horizon before choosing a fund. The best managed income fund is the one that best meets your needs.

Managed income funds contain an assortment of stocks, bonds, and other securities that pay interest or dividends. Fund managers receive income from the underlying investments and regularly disburse the income to shareholders. The value of a mutual fund's shares fluctuates, but the dividend payments remain relatively stable because these payments are not directly tied to the price of the shares or the value of the underlying securities. You should look for funds that have a history of paying regular dividends that are substantial enough to meet your income needs.

Review several managed income fund prospectuses, which can be obtained from licensed investment brokers. The fund prospectus details the fund's strategy and the holdings typically bought by the fund. Conservative funds mainly invest in government bonds, whereas more aggressive funds primarily contain corporate dividend paying stocks. Bond heavy funds are typically less risky than stock funds and have less price volatility. Choose a fund that reflects your risk tolerance, but take into account that less risk usually leads to less potential reward.

Mutual fund managers and investment sales representatives are not allowed to make predictions about future performance of a fund, so you must look at the prospectus to see the fund's past performance. The history of a managed income fund is not always indicative of its future performance, but if one fund consistently performs well and another continually struggles, it may be that the successful fund has a better investment strategy. Find a fund with a sound strategy rather than one containing securities from a particular sector that are unlikely to maintain value in the long-term.

Compare the fee structure of the funds that best meet your income needs and risk tolerance level. Some managed income funds charge upfront load fees, others have back end fees that are charged when you sell shares, and others have no loads at all. In addition to load fees, managed income funds have annual operating fees that cover administrative costs. Invest in the fund that meets your overall needs, but has the lowest expense ratio.

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