What is an equity income fund?
An equity income fund is an investment fund that provides exposure to dividend-paying shares.
An equity income fund pays regular distributions to investors who hold units in the fund. Those distributions effectively are the unitholder’s ‘share’ of the dividends paid by the shares the fund holds.
What are dividends?
Dividends are payments a company may make to its shareholders, usually on a periodic basis (e.g. twice a year). The amount an investor receives depends on how many shares they hold in the company and the amount of the dividend declared by the company.
Dividends are payable in cash, and some companies also offer a dividend reinvestment plan, where participating shareholders can elect to receive their dividends in the form of additional shares in the company.
The benefits of an equity income fund
An equity income fund may be suitable for an investor looking for relatively high yields, a regular income stream, and exposure to equities. A key benefit of equity income funds is diversified exposure, as the fund holds a portfolio of shares, reducing the risk associated with investing in a single stock or sector.
Historically, dividends have made up a significant proportion of the total returns from the Australian sharemarket. Historically, on average, Australian companies have had among the highest dividend yields1 and payout ratios2 in the developed world.
Read why Australia historically has had a high payout ratio compared to other developed markets here.
What is the difference between dividends and equity?
A dividend is a portion of a company’s profit that it chooses to pay out to shareholders.
Holding equity means having a stake in a company – in other words, it means you are a shareholder in the company.
How to invest in equity income funds and ETPs?
You can buy and sell Betashares equity income funds on the ASX just like shares. Betashares has a number of exchange-traded products with a primary investment objective of generating income, and which typically pay distributions either monthly or quarterly to investors.
Some of these funds provide exposure to Australian equities:
-
RINC
Betashares Martin Currie Real Income Fund (managed fund)
-
EINC
Betashares Martin Currie Equity Income Fund (managed fund)
while others provide exposure to global equities, such as:
-
INCM
Global Income Leaders ETF
Some equity income funds employ strategies to further enhance the income stream they generate, such as dividend-harvesting or option-writing. These funds include:
Considerations when investing in equity income funds
One consideration when investing for income is that funds which are designed with an income focus in mind may tilt the composition of investment returns away from capital and towards income generation.
It is important to always take into account your financial circumstances and investment goals, and consider a diverse range of investments across a balanced portfolio to meet your financial objectives.