Before we talk about the advantages of Equity Income Fund, let us first tell you what is an equity income fund.
An equity income refers to the dividend income which is received on the investments made in shares (equity). EIF is a mutual fund which invests only in those companies which are high-quality and have a history of paying dividends and their dividend rate have shown an upward trend.
Advantages of Equity Income Fund
Risk is less if company pays dividend
Usually a firm which pays dividends has a good cash-flow, they are steady in their operations and must be earning profits. From an investor’s point of view, companies which pay dividends regularly are a safe bet as the risk is pretty less in these companies.
Sometimes dividends are higher than interest on bonds
We all know that bonds can be counted among the safest options for investment but the returns are less and sometimes the dividend paid on the shares is more than the returns on bonds. So in simple words, investing in the shares of the dividend paying companies is better than bonds.
Reinvestment of dividend can give good growth
Reinvested dividends can give a good return to investor on his total investment, however, the volume of dividend paid by the company plays an important role in ascertaining as to how much will be the return if dividends are reinvested.
These advantages make an equity income fund a good option for investment.