Dividend Income Funds put money into your pocket without you having to do the actual picking and choosing of individual stocks.

Before you buy dividend income funds you need to learn about the distribution rate policy. Some funds just pay out the dividends collected which makes the rate equilvalent to the dividend yield on the stocks. Some funds will pay a specific amount of the income, which means principal can be returned as part of distribution. When principal is returned, it is from either gain earned on a sale, or a fund that was forced to liquidate a stock that was at loss to make sure requirements are met on the distribution rate. You will want to understand how the distribution rates work before buying any stock.

Most dividend income funds pay on a quarterly basis, which means four times a year. By rolling stocks based on ex-dividend dates, this fund is able to get five payments. This strategy however, results in a higher distribution rate. With this strategy there are also captial losses, or gains due to the fund buying and selling stocks quickly.

A simple dividend income fund that owns the paying stocks, collects dividends, and pays them out is known as the DOW Jones Select dividend income fund. This is a traded index that owns stocks listed in the U.S. select dividend index known as the DOW Jones which tracks over one hundred leading dividend paying companies here in the United States.

Closed end funds are divindend income funds that have risks as well as benefits. These dividend income funds do not operate like an open mutual fund. Closed end funds follow a capture strategy. This is where stocks are bought right before the ex-dividend date, and then sold after they pay out the dividend. For an example of a mutual fund that pays dividends take a look at the Blackrock Equity Dividend Fund.

If you are looking for a monthly retirement check, check out retirement income funds. Like dividend income funds this fund is made to pay out like a regular income. These funds offer a diversified portfolio of stocks that are set to pay out in a long term return. This allows a set amount of income coming to you every month instead of the check being different. In the retirement income funds they do not own stocks, but have stocks that are managed on a long term level being guaranteed to pay out for as long as you are looking to receive a check.

Common mutual fund dividend questions:

What is a mutual fund?

A mutual fund is a type of investment that allows people to buy shares in an investment portfolio. Typically, a mutual fund refers to a portfolio set up by a company. This portfolio usually includes a variety of investment options. Investors put money into this portfolio and then receive dividends, which reflect their proportion of investment. Thus a greater investment will yield a greater return.

It should be made clear that mutual funds are not guaranteed investments, but companies usually minimize the risk of their investors by making sure that their portfolio contains enough options that it can be adjusted to suit any shifts in the market. If the economic climate requires an aggressive or defensive position the portfolio should be suitably blended to afford this.

Who looks after the mutual fund?

Mutual funds are usually controlled by a fund manager. In most companies (especially larger, well established companies) the mutual fund manager is seasoned investment professional. He is responsible for setting up an appropriate and flexible mutual fund portfolio and maintaining it as the climate changes.

What Types of funds are there?

There are four primary types of mutual fund:

1) Stock Funds (sometimes called Equity Funds)

This type of mutual fund is focused on increasing the growth of invested capital. This is achieved through equity investments. Some stock funds also attempt to provide dividend income but this is usually a secondary aim.

2) Bond Funds

Perhaps the best-known type of mutual fund, these funds provide current income rather than overall growth on initial investment. They usually represent investments in the U.S. Government, as well as corporate of municipal debt obligations.

3) Balanced Funds

This option gives the investor an opportunity to invest in common stocks, bonds and preferred stocks in order to obtain a high level of return but with little danger of volatility.

4) Money Market Funds

This is the lowest risk mutual fund and subsequently also provides the lowest returns on investments. It works by investing in short-term obligations that are created by banks, large corporations, local, and federal government.


Any investment made into a mutual fund is neither insured nor guaranteed by FDIC (Federal Deposit Insurance Corporation). It should be noted that it is possible to lose money when investing in a mutual fund, although the fund is set up to protect against losses.

Advantages of Mutual Funds

Your money will be professionally managed by a manager whose job is specifically to improve on your investment and protect against loss. Mutual funds also offer flexibility since they can be liquidated at any time the stock market is open. Most importantly perhaps, mutual funds offer diversification. One share in a mutual fund represents ownership across a diverse range of securities. Finally, mutual funds offer the convenience of doing transactions in writing, online or over the phone.


There is no guarantee with mutual funds. Taxes are another consideration, mutual funds may be subsequent to capital and/or income tax at various times throughout the year.