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Best Income Funds UK – Compare Top Funds 2021

If you are looking for an asset that will take the guesswork out of your investment activities, funds are a great place to begin. There are many different types of funds out there, but one of the best types for steady and low-risk growth is income funds.

This guide will discuss the best income funds UK. We’ll analyse the best funds, reveal the top brokers, and walk you through how you can invest in income funds today.

Best Income Funds UK 2021 List

The list below highlights the best income funds UK in 2021. In the section that follows, we will break down each of these funds in detail, providing you with crucial information that you need to know.

  1. JPMorgan Ultra-Short Income ETF (JPST) – Overall Best Income Fund UK – Invest Now
  2. iShares Core High Dividend ETF (HDV) – Best Income Fund UK for Dividends – Invest Now
  3. Invesco S&P 500 High Dividend Low Volatility ETF (SPHD) – Best Fund for Low Volatility – Invest Now
  4. Vanguard Total Bond Market ETF (BND) – Best Income Fund UK for Bond Investing
  5. Schwab US Dividend Equity ETF (SCHD) – Best Income Fund UK for Exposure to the US Market
  6. Iboxx $ High Yield Corporate Bd Ishares (HYG) – Best Income Fund UK for High Yield Bonds
  7. iShares Asia Pacific Dividend UCITS ETF (IAPD.L) – Best Income Fund UK for Investing in the Asian Market
  8. Vanguard Growth ETF (VUG) – Best UK Equity Income Fund
  9. iShares Core US Aggregate Bond ETF (AGG) – Best Income Fund UK for Investment-Grade Bonds
  10. Sequoia Economic Infrastructure Income Fund (SEQI.L) – Best Income Fund UK for an Attractive Risk-Adjusted Return

Best Income Funds UK Reviewed

Determining which is the best income fund UK can be a tricky process, as there are many elements to consider. Whether you are wondering how to invest £500, or how to invest 40k, you must do your due diligence. With so many different providers and various types of assets within each fund, deciding which income fund is best for you can seem daunting at first.

However, not to worry – in the section below, we will discuss the ten best funds for income mentioned in the previous section. This analysis will provide a good overview of your fund options, helping you make more informed investment decisions.

1. JPMorgan Ultra-Short Income ETF (JPST) – Overall Best Income Fund UK

If you are looking for one of the best income funds UK to deliver current income whilst managing the risk level, then you might want to consider the JPMorgan Ultra-Short Income ETF. This fund is popular amongst investors for its ability to provide a positive return, regardless of market conditions.

JPMorgan Ultra-Short Income ETF

For example, in 2020, during the height of the lockdown, many investments were tanking. However, the JPMorgan Ultra-Short Income ETF still returned 2.18% across the whole year; although relatively small, this return is still impressive considering the circumstances.

Furthermore, this fund pays dividends each month, making it one of the best monthly income funds 2021. With consistent dividend income and a reliable annual return, this fund is one of the most popular income funds UK in 2021.

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2. iShares Core High Dividend ETF (HDV) – Best Income Fund UK for Dividends

If you are interested in gaining a passive income stream through dividend payments, then the iShares Core High Dividend ETF might be your best bet. Featuring 75 of the highest dividend-growth stocks in the US, this fund focuses primarily on current income rather than annual returns.

Although this fund experienced a considerable underperformance in 2020 (down by 6.47%), the external factors caused by the Coronavirus pandemic played a considerable part. In fact, if you look at 2019, the fund returned an impressive 20.35% to investors. With a quarterly dividend payment from the highest dividend equities, this fund is excellent for people who wish to receive an additional cash flow every three months.

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3. Invesco S&P 500 High Dividend Low Volatility ETF (SPHD) – Best Income Fund for Low Volatility

One of the best income funds for retirement is the Invesco S&P 500 High Dividend Low Volatility ETF. This fund focuses on investing in low-risk assets, providing investors with a ‘safe return. It also aims to replicate returns provided by the S&P 500 Low Volatility High Dividend Net Total Return Index.

Invesco S&P 500 High Dividend Low Volatility ETF

In terms of this fund’s goals, it is considered one of the best income funds for retirement due to its low-risk nature, combined with attractive dividend payments. Although it experienced a negative return in 2020 due to the pandemic, it pays a yield of 3.72% to investors, making it an attractive prospect for people who value a lower-risk but cashflow-producing investment.

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4. Vanguard Total Bond Market ETF (BND) – Best Income Fund UK for Bond Investing

This fund is one of the best monthly income funds 2021 to invest in due to its consistent cash payments arriving from the fund managers shrewd bond investments. The Vanguard Total Bond Market ETF is a favourite of investors worldwide and has made an average annual return of 4.21% since its inception in 2007.

Vanguard Total Bond Market ETF

Featuring a selection of 1004 treasury bonds, this fund is definitely placed in the low-risk bracket. These bonds are predominantly US-government bonds, with a secondary focus on AAA bonds. Due to the high-quality nature of the investments, the Vanguard Total Bond Market ETF is a suitable fund to invest in as an alternative to a bond ETF if you are looking for exposure to the bond market. What’s more, you can invest in this fund commission-free with eToro!

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5. Schwab US Dividend Equity ETF (SCHD) – Best Income Fund UK for Exposure to the US Market

If you are looking for the best income fund UK to diversify your portfolio through exposure to the US market, this fund could be a suitable investment. The Schwab US Dividend Equity ETF aims to track the returns of the Dow Jones U.S. Dividend 100, offering a low-cost and tax-efficient investment.

SCHD

The assets included within the fund focus on quality and dividend sustainability and only stocks that are strong compared to their peers are included. In terms of annualised returns, the Schwab US Dividend Equity ETF made an incredible 35.81% in 2020, which is impressive considering the scale of the Coronavirus pandemic. Furthermore, the fund is currently up 5.10% in the year to date. If you are looking for a US-based income fund to boost your earnings, this fund could be a great option.

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6. Iboxx $ High Yield Corporate Bd Ishares (HYG) – Best Income Fund UK for High Yield Bonds

There are various types of bond available to investors, including government, municipal, corporate, and more. However, high-yield bonds tend to be offered by corporate entities. Although slightly riskier than treasuries, as these bonds have a more significant chance of default, they tend to offer a larger rate of return. These bonds are what the Iboxx $ High Yield Corporate Bd Ishares focuses on.

Iboxx $ High Yield Corporate Bd Ishares

Over the past year, the fund returned a decent 4.12% and has returned an average of 7.11% annually over the past five years. Furthermore, this fund makes its cash payments to investors every month – meaning it is another of the best monthly income funds 2021 to choose from. With a low expense ratio of only 0.49% and over 1300 of the highest-yield bonds included in the fund’s assets, this ETF is ideal for people who are okay with a little more risk than other income funds but are looking for a greater return.

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7. iShares Asia Pacific Dividend UCITS ETF (IAPD.L) – Best Income Fund UK for Investing in the Asian Market

The iShares Asia Pacific Dividend UCITS ETF aims to invest in the top 50 dividend-paying stocks based in Asia-Pacific countries. With 40% of assets being based in Hong Kong, 21.26% in Japan, and 18.97% in Australia, this fund provides investors with significant exposure to the Asia-Pacific market.

iShares Asia Pacific Dividend UCITS ETF

Due to the nature of some of these countries and the fact they are categorised as emerging markets, this fund can tend to be more volatile. In 2020, the fund experienced a negative return of -10.16%. However, the year previous, the fund made a positive return of 14.41%, which was higher than the FTSE 100 index. With many analysts highlighting the potential that Asia-Pacific markets have over the following decade, this fund is one of the best equity income funds to gain exposure to these markets.

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8. Vanguard Growth ETF (VUG) – Best Equity Income Fund

As mentioned, income funds tend to be comprised of bonds or dividend-paying stocks. One of the best equity income funds that focus primarily on the latter, and does so whilst providing solid performance, is the Vanguard Growth ETF. Featuring a selection of US equities, this fund aims to replicate its benchmark index’s performance, the CRSP US Large Cap Growth Index.

Vanguard Growth ETF

This fund has managed an incredible 45.34% return last year through wise investment from the fund manager in charge, which is far better than many funds that operate within the UK equity income sector. Furthermore, it has returned to investors an average of 21.89% over the past five years alone, making it one of the best performing funds on our list. Finally, this fund provides a quarterly dividend payment to investors, meaning it is a firm favourite of both retail and professional traders who desire one of the best equity income funds to place their capital in.

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9. iShares Core US Aggregate Bond ETF (AGG) – Best Income Fund UK for Investment-Grade Bonds

Investment-grade bonds are considered to have an extremely low chance of default and therefore receive higher ratings from credit agencies such as Moody’s and Fitch. This low chance of default means that returns can be considered relatively risk-free but might not be at the level of some other investments.

iShares Core US Aggregate Bond ETF

The iShares Core US Aggregate Bond ETF provides exposure to over 8400 investment-grade bonds, with 37% of them coming in the form of US Treasury bonds. In turn, this has provided investors with a solid and consistent return over the past five years, averaging 4.38% each year. Finally, it can also be considered one of the best monthly income funds 2021 due to its dividends’ regularity. If you are interested in this fund, you can invest quickly and easily with eToro – all without paying a penny in commission!

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10. Sequoia Economic Infrastructure Income Fund (SEQI.L) – Best Income Fund UK for an Attractive Risk-Adjusted Return

The last fund we will discuss in this guide is the Sequoia Economic Infrastructure Income Fund. This fund aims to provide investors with consistent current income and long-term capital growth through investments in economic infrastructure debt. This means that, rather than investing in bonds or equities, this fund invests in large infrastructure projects in exchange for a slice of the project’s revenue.

Sequoia Economic Infrastructure Income Fund

What this means for investors is that the Sequoia Economic Infrastructure Income Fund provides not only an attractive risk-adjusted return but a consistent current income too. Featuring a high yield of 6.05% and payments made each quarter, this fund is one of the best income funds for retirement as it provides an avenue to a passive income stream.

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What are Income Funds?

Income funds are a specific category of mutual funds, distinguished by the type of assets they invest in. Income funds come in various forms, such as money market funds, bond funds UK, and equity income funds. The best investment funds for income will primarily invest in securities that generate a fixed return for investors. These securities usually comprise assets such as bonds or dividend-paying equities.

Due to the nature of the assets included within them, income funds tend to prioritise current income rather than income generated through capital gains. This current income refers to cash paid to investors in the income fund and usually takes the form of dividends and interest payments. This is a great benefit of investing in income funds, as they provide another passive source of income for investors.

One of the key elements of income funds is the quality of assets that comprise the fund. When the fund manager is deciding which securities to invest in, he/she will usually focus on securities that are ‘safe’ and are backed by a large entity, thereby safeguarding them from negative scenarios such as default.

best income funds UK etoro

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These ‘safe’ securities tend to come in the form of bonds – these can be corporate bonds, municipal bonds, and government bonds. Bonds are backed by the entity underlying them; for example, US treasury bonds are supported by the US government’s power. This means that the reliability of the bond is solid, as it is extremely unlikely that the government would ever default.

As mentioned, income funds focus on providing current income to investors through the medium of dividends or interest payments, which provides a better return than other investments such as an ISA. Payment dates can vary, but a large percentage of funds distribute income payments to their investors every quarter. You can then withdraw this cash payment, or reinvest it back into the fund, thereby increasing your investment.

Are Income Funds a Good Investment?

Now that you know what income funds are, you might be wondering – are they a good investment? This question depends on your investment goals and how much risk you are willing to take on to achieve them. It also depends on whether you are looking for short-term gains, or are happy to invest over the longer-term.

Income funds do have numerous benefits, though. Firstly, and as touched on previously, they are a good investment if you value current income. The best global income funds will provide a consistently high income stream through interest and dividend payments, meaning that if you are looking for passive cash flow, income funds might be a good investment for you.

Another reason that the best funds for income might be a good investment for you is their overall risk level. The best equity income funds focus on high-dividend stocks but may come at a slightly higher level of risk due to fluctuations in share prices. However, if you instead prefer a low-risk investment, then investing in one of the best income funds for investing for retirement can provide a consistent level of return that will compound and become more significant as the years go on.

Also, the best funds for income offer great diversification benefits for your portfolio. If you are invested primarily in equities, the best income funds UK can help spread the risk across another asset, meaning that if your equities experience a downturn, you always have the consistent return of your income fund investment to compensate for some of the losses. These reasons explain why income funds are considered one of the best long term investments.

However, to give a fair overview, it is wise to touch on a couple of the drawbacks of income funds. The best monthly income funds 2021 tend to focus on safe assets, meaning that returns can be pretty small relative to other investments. A recent report by Sanlam in 2019 noted that the top 14 income funds in the UK returned an average yield of 5.6% over the previous five years. Furthermore, the full impact of Brexit is still being analysed, so the performance experienced in recent years may differ from what we see going forward.

Although the best income funds for retirement are less risky than other investments, it does not mean that they are risk-free. Furthermore, dividend-paying companies are under no obligation to continue this indefinitely, meaning they can reduce the dividend amount or stop it entirely at any point. This can then impact the amount of income you get from your fund investment.

Best Income Funds UK Investment Platforms 2021

Now that you’ve got a good feel for some of the best income funds out there and the elements you need to be aware of when investing in one, it’s time to discuss which investment platform to use.

There are many factors to look at when deciding who to invest in the best income funds UK with. To point you in the right direction, the section below will discuss two of the best trading platforms in the UK to invest with.

1.    eToro – Invest in Income Funds with 0% Commission

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One of the most popular brokers to invest in income funds with is eToro. With over 20 million users worldwide, eToro has solidified itself in the brokerage scene through a solid product offering and attractive rates for users.

Firstly, eToro allows you to trade all of the ten income funds we discussed earlier. What’s more, when investing in income funds with eToro, you will pay 0% commission! The only fee you’ll have to pay is the small expense ratio charged by each fund’s provider – usually, this ranges anywhere from 0.2% to 0.9%. So, if you made a £1000 investment in an income fund with an expense ratio of 0.2%, you would only have to pay £2 in fees each year.

etoro invest in income funds

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eToro is regulated by the FCA, which means there are strict measures in place that protect your money. What’s more, personal data is kept under SSL encryption, further securing your information. eToro places great emphasis on customer security so that you can trade safely.

Deposits are quick and easy too. eToro offers a wide range of deposit options, including credit card, debit card, bank transfer, e-wallet, and more. Also, there are no deposit fees attached to any of these methods. The minimum trade amount for the income fund ETFs mentioned in this article is $50, which converts to approximately £36.

Finally, if you are looking to add other assets to your portfolio along with income funds, eToro offers a vast selection of securities to trade from. You can buy shares, there are over 2400 across 17 markets; or, if you’d like to add the best ETFs to your portfolio, eToro offers 175 to choose from. This ensures there is an investment opportunity for everyone.

Pros:

  • Super user-friendly online trading platform
  • Buy income funds without paying any commissions
  • Trade CFDs in the form of stocks, indices, commodities, forex, and more
  • 2,400+ stocks listed on the UK and international markets
  • Deposit funds with a debit/credit card, e-wallet, or UK bank account
  • Ability to copy the trades of other users
  • FCA and FSCS protections

Cons:

  • Not suitable for advanced traders that like to perform technical analysis

67% of retail investors lose money trading CFDs at this site

2.    Libertex – Trade Income Funds with ZERO Spread and Leverage

libertex logo

Suppose you are looking for an alternative to eToro, and you have a reasonable degree of trading experience. In that case, another option to invest in the best global income funds is Libertex. Libertex operates primarily as a CFD broker, which involves buying a contract based on the price of the underlying asset rather than buying the asset itself; this means Libertex differs from a regular stock broker.

CFD trading allows you to speculate on a specific security without having to hold it directly. What’s more, CFDs also will enable you to trade with leverage. Libertex offers leverage ratios of up to 1:5, allowing you to essentially 5x your stake. However, leverage trading can be hazardous, so just a disclaimer – make sure you know the potential losses before trading.

libertex trade etf

In terms of the fees that Libertex charge, they operate under a ZERO spread structure, meaning that you will get the best rates when you invest in the best global income funds with them. What’s more, their commission fees are very low, typically ranging between 0.02% and 0.3% of your stake, depending on the specific fund you invest in.

If you are interested in trading with Libertex, the minimum deposit is only £100 and can be made through credit/debit card, bank transfer, or e-wallets. What’s more, if you want to test the waters before making an actual trade, Libertex also offers a demo account that allows you to get a feel for the platform.

Pros:

  • Zero spread CFD trading
  • Very competitive commissions
  • Good educational resources
  • Long established broker
  • Trade stocks and indices like the Dow Jones
  • Best MT4 Broker
  • Great choice of markets

Cons:

  • Only offers CFDs

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How to Buy the Best Income Funds UK

By now, you should have a solid idea of what the best global income funds are and which interest you the most. Also, the previous section has showcased two of the leading investment platforms to invest in the best income funds UK.

To wrap up, we will now lead you through the step-by-step process of investing in an income fund. We will use eToro as an example because they allow you to invest without paying a penny in commissions.

Step 1: Open your Account

The first step involves beginning the account opening process. You can do this on the eToro website or through their investment app.

eToro sign up

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All you need to do is provide some personal details, contact details, and a National Insurance number. Once that’s done, it’s onto step 2.

Step 2: Provide Proof of Identity and Proof of Address

As the FCA regulates eToro, new customers must verify their identity and address. Luckily, this is quick and easy to do with eToro. Simply upload your proof of ID (driver’s license or passport) and proof of address (utility bill or bank statement) through the online portal.

Once uploaded, eToro will begin verifying your documents. This usually only takes a few minutes to complete.

Step 3: Make a Deposit

Next, you need to fund your account. eToro offers many deposit options, such as credit card, debit card, bank transfer, or e-wallet. Simply choose your deposit method, enter the amount, and click confirm.

Step 4: Search for your Chosen Income Fund

Once you have made a deposit, simply click on the search bar at the top of the screen and search for your fund. For this example, we will use the JPMorgan Ultra-Short Income ETF. When you have found the correct fund, then click the ‘Trade’ button.

buy income fund with etoro

 

Step 5: Invest in Income Fund

All that’s left to do is finalise your commission-free investment with eToro. Simply enter the amount you wish to invest, double-check everything is correct, and click the ‘Open Trade’ button.

invest in income fund with etoro

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And that’s it! You are now officially an investor in one of the best income funds UK!

Conclusion

In conclusion, the best income funds UK allow you to invest passively and earn a low-risk return. Due to the nature of the assets included within these funds, returns aren’t as significant as other types of funds. However, the low-volatility nature, combined with another income stream through dividend payments, means these funds are attractive to many investors.

If you are interested in investing in the best funds for income, you can do so completely commission-free by using eToro. All of the funds mentioned in this guide are available through eToro, and what’s more, the sign-up process is quick and easy – meaning you could be set up and ready to invest in as little as 10 minutes!

eToro – Buy the Best Income Funds UK with 0% Commission

67% of retail investor accounts lose money when trading CFDs with this provider.

FAQs

What is the difference between accumulation and income funds?

How do income funds work?

What are fixed-income funds?

What are equity income funds?

What are fixed income mutual funds?

What are the best income funds?

How do income funds payout?

About Connor Brooke PRO INVESTOR

Connor is a Scottish financial expert, specialising in wealth management and equity investing. Based in Glasgow, Connor writes full-time for a wide selection of financial websites, whilst also providing startup consulting to small businesses. Holding a Bachelor’s degree in Finance, and a Master’s degree in Investment Fund Management, Connor has extensive knowledge in the investing space, and has also written two theses on mutual funds and the UK market.

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