The investment objective for the current income strategy is to provide a steady income to the investor rather then capital gains. This strategy is often adopted by investors looking for a steady income during retirement to replace their income from any previous employment.
Income acquired from a current income fund is often drawn from bond interest payments, dividends and annuity payments. This strategy is often suited to a moderate risk investor as it often contains a large proportion of fixed income securities and blue-chip stocks; those with a reputation for stability and growth.
As mentioned this investment strategy is appropriate for investors who are perhaps looking to maintain the value of their savings against inflation and are looking for a steady, reliable income from their assets. A strategy which adopts a higher level of risk, such as capital appreciation would be better suited to someone looking to achieve growth form their income.
Case study.
Paul wants to support his son Liam for four years whilst he is away at university. Paul invested £100,000 in a fixed term investment bond which pays 5% interest per annum at a monthly rate. This provides Liam with an income of £5000 annually to cover his rent and living costs so he doesn’t have to worry about working to support himself. After the four years, when Liam has finished his degree, the investment bond will have matured and Paul can cash it in and take back his £100,000.
The image above represents an example of using a basic bond to provide income. In reality product selection and interest rates applied will vary according to market conditions and customer needs.