The Short Answer
If you’re looking for steady cash flow without the rollercoaster ride of growth stocks, income funds can be a smart addition to your portfolio. These funds focus on generating regular income—typically through interest from bonds or dividends from real estate and other income-producing assets. They’re often lower in volatility than equity funds and can be a cornerstone in asset allocation strategies for risk-conscious investors.
In this guide, we’ve rounded up five of the best income funds, each with unique strategies and strengths. Whether you’re seeking high-yield private lending (like New Silver’s Income Fund) or diversified REIT exposure through mutual funds such as those from PGIM and Fidelity, there’s a fund here for every income-focused investor.
Top Income Funds In 2025
What Are Income Funds?
Income funds are a category of mutual funds designed to generate regular income for investors, primarily through fixed income securities like bonds, and in some cases, dividend-paying stocks or real estate assets. Unlike growth funds, which focus on capital appreciation, income funds aim to deliver a reliable stream of cash payouts – monthly or quarterly – making them especially attractive to retirees or anyone seeking passive income.
These funds can vary widely in their strategy. Some may focus exclusively on bond mutual funds, others blend fixed income with real estate or high-dividend equities. The common thread is their goal: income over speculation. Due to the fact that they often hold a diversified mix of fixed income securities, income funds are generally less volatile than equity funds, though their returns may be more modest. For investors prioritizing income over capital gains, they offer a balanced, often tax-efficient way to navigate changing market conditions.
Best Income Funds In 2025
1: New Silver Lending Income Fund
New Silver’s Income Fund stands out in 2025 as a solid choice for accredited investors seeking consistent, high-yield returns from real estate debt. Known for its technology-first approach to lending, New Silver offers short-term loans to real estate investors across the United States, including fix and flip, ground-up construction, and rental loans.
The Income Fund delivers an attractive annual return of over 14%, with quarterly payouts generated from a diversified portfolio of short-duration loans. Each loan is secured by a first-position lien on residential investment properties and underwritten in-house by New Silver Lending LLC. The fund’s structure ensures strong investor protections, with notes held in a bankruptcy-remote indentured trust and enhanced returns supported by committed senior leverage.
Highlights:
- Target annual return of 14%+, with no lockup and quarterly redemptions available
- Minimum investment amount is $50,000
- Loans are secured by first-position liens on U.S. residential investment properties
- Short-term debt structure supports liquidity and reduced duration risk
- Backed by committed senior leverage for enhanced yield potential
- Managed by New Silver, a fintech-driven lender specializing in real estate investment financing
Best Suited For: Accredited investors seeking high-yield passive income through real estate debt, with a preference for short-term loan exposure and consistent quarterly distributions. This fund is ideal for those who want to capitalize on the U.S. residential investment market without direct property management, while benefiting from the speed, transparency, and innovation of a fintech-enabled lending platform.
2: Goldman Sachs Real Estate Diversified Income Fund
The Goldman Sachs Real Estate Diversified Income Fund (GSRHX) offers accredited investors access to a diversified portfolio of real estate assets, combining both private and public investments across equity and debt instruments. Structured as a closed-end interval fund, it aims to deliver income and capital appreciation with lower volatility compared to traditional equity markets.
Managed by a seasoned team averaging 19 years of industry experience, the fund leverages Goldman Sachs’ extensive real estate expertise and global resources. As of December 31, 2023, the fund reported an annualized quarterly distribution rate of 6.5%, with a volatility of 7.6%, significantly lower than the 18.2% observed in the S&P 500, highlighting its potential for steady income with moderated risk.
Highlights:
- Both Public and Private Real Estate: Invests in both private and public real estate sectors, encompassing equity and credit assets.
- Attractive Yield: Offers a 6.5% annualized quarterly distribution rate.
- Experienced Management: Led by a team with an average of 19 years in real estate investment.
- Lower Volatility: Exhibits a 7.6% volatility rate, less than half that of the S&P 500.
- Interval Fund Structure: Allows for daily purchases and quarterly redemptions, providing liquidity while maintaining investment stability.
Best Suited For: Accredited investors seeking diversified real estate exposure with a balance of income generation and capital appreciation, coupled with lower market volatility.
3: PGIM Real Estate Income Fund
The PGIM Real Estate Income Fund offers investors exposure to a diversified portfolio of real estate securities, aiming to provide both income and capital appreciation. Managed by PGIM, the global investment management business of Prudential Financial, the fund primarily invests in equity and equity-related securities of real estate companies, including real estate investment trusts (REITs), across domestic and international markets.
As of June 6, 2025, the fund has demonstrated a 1-year return of 18.46% and a 5-year return of 77.05%, reflecting its strong performance in the real estate sector. With a net expense ratio of 1.10%, the fund maintains a competitive cost structure.
Highlights:
- Diversified Real Estate Exposure: Invests in a mix of domestic and international real estate securities, including REITs.
- Strong Performance: Achieved a 1-year return of 18.46% and a 5-year return of 77.05% as of June 6, 2025.
- Competitive Expense Ratio: Maintains a net expense ratio of 1.10%, offering cost efficiency.
- Experienced Management: Managed by a seasoned team at PGIM, leveraging extensive expertise in real estate investments.
- Quarterly Distributions: Provides regular income through quarterly dividend distributions.
Best Suited For: Investors seeking diversified exposure to the real estate sector with the potential for both income and capital appreciation. Suitable for those looking to invest in a fund managed by experienced professionals with a strong track record in real estate investments.
4. Fidelity Series Real Estate Income Fund
The Fidelity Series Real Estate Income Fund aims to provide a higher-than-average income stream, with a secondary goal of capital appreciation. The fund invests predominantly in preferred and common stocks of REITs, commercial and other mortgage-backed securities, and debt from real estate companies, maintaining at least 80% allocation in real estate-related investments. Its strategy includes a global reach, emphasizing U.S. exposure, and a tilt toward lower-quality debt to enhance yield potential.
With a net expense ratio of 0.00% and a 30-day SEC yield of 7.27% (as of June 2025), the fund stands out for cost efficiency and income generation. It is actively managed by Bill Maclay, who has led the fund since 2019. The fund has delivered strong long-term performance, boasting an 8.83% 1-year return and 8.31% 5-year return (as of May 2025). Its diversified sector exposure includes significant allocations to home financing, lodging, industrial, and diversified REITs.
Highlights:
- Expense Ratio: 0.00%, providing fee-free exposure to the real estate sector
- Yield: 7.27% 30-day SEC yield as of June 2025
- Strong Long-Term Returns: 5-year return of 8.31%, 10-year return of 5.52%
- Broad Investment Strategy: Includes REITs, mortgage-backed securities, and real estate debt
- Top U.S. Allocation: Over 91% of assets invested in U.S. real estate-related entities
- Actively Managed: Overseen by experienced portfolio manager Bill Maclay since 2019
Best Suited For:
Income-focused investors seeking exposure to both real estate equity and credit markets, particularly those prioritizing fee efficiency and stable yield. Ideal for long-term investors who value diversification across real estate sub-sectors with a disciplined, active management approach.
5. Baron Capital Real Estate Income Fund
The Baron Real Estate Income Fund sets itself apart by combining a broad real estate mandate with a high-yield focus. Actively managed by Jeff Kolitch since its inception in 2017, the fund invests in a mix of REITs and non-REIT real estate-linked equities, including data centers, towers, and real estate-related financial companies. Its strategy is to capture both income and capital appreciation, supported by a flexible, all-cap investment approach.
As of March 2025, the fund boasts a 1-year return of 13.98% and a 5-year return of 12.86%, outperforming the MSCI US REIT Index over both periods. It has received a 5-star Morningstar rating for its 3-year and 5-year performance and holds a Silver Medalist Rating. The fund’s 1.39% dividend yield is complemented by strong long-term growth potential, making it one of the most balanced performers in its category.
Highlights:
- Top-Rated Performance: 5-star Morningstar rating for 3-year and 5-year periods
- Strong Returns: 13.98% 1-year and 12.86% 5-year return as of Q1 2025
- Strategic Diversification: Mix of REITs and non-traditional real estate holdings
- Actively Managed: Run by Jeff Kolitch since inception, emphasizing active selection
- Dividend Yield: 1.39%, with quarterly distributions
- Recognized for Excellence: Morningstar Silver Medalist and standout risk-adjusted returns
Best Suited For: Investors looking for a real estate income fund with strong historical performance, a high-conviction active management style, and diversified exposure beyond traditional REITs. Ideal for those who value both income and long-term growth within the real estate sector.
Are Income Funds Safe To Invest In?
Income funds are often viewed as a safer investment option compared to equity funds, thanks to their focus on fixed-income securities like real estate, bonds and dividend-paying stocks. These assets are generally less volatile than equities, offering more predictable returns and regular cash flow, which makes them appealing to conservative investors or those nearing retirement.
That said, safety doesn’t mean risk-free. The level of risk in an income fund depends largely on the types of securities it holds. For instance, high-yield bonds may offer better returns but come with higher credit risk. Interest rate fluctuations can also impact bond values—when rates rise, bond prices typically fall. Moreover, the quality of fund management plays a critical role in navigating these dynamics. Many income funds also include dividend-paying stocks from mature companies with strong financials, adding a layer of dependability to the income stream.
At its core, income investing is about generating steady cash flow, not chasing high-risk growth—making it a more stable, though potentially lower-yielding, strategy.
How To Analyze Income Fund Performance
When evaluating income mutual funds, it’s essential to go beyond simple return figures and focus on how well the fund delivers consistent cash flow while managing risk. These funds typically invest in fixed income securities, such as government and corporate bonds, which provide a predictable income stream and help buffer against market volatility.
Start by examining the fund’s 30-day SEC yield, a key measure of how much income is generated from fixed income holdings. Pair this with a review of the fund’s distribution history to see whether it has provided steady payouts without dipping into capital. For bond mutual funds, consistency is often more valuable than a temporarily high yield.
Next, assess total return, which combines income with any capital appreciation. Strong income funds not only preserve capital but also offer modest growth potential. Compare these returns across multiple timeframes—1-year, 3-year, 5-year—and benchmark them against similar mutual funds or fixed income indices to gauge performance.
Pay close attention to the credit quality of the portfolio’s fixed income securities. A fund using a fixed income strategy that leans heavily on high-yield or junk bonds may deliver higher income but comes with elevated risk. In contrast, funds that balance high-yield bonds with investment-grade debt (and don’t use a fixed income strategy) often provide a more stable ride.
Also consider the fund’s role in your broader asset allocation strategies. Bond mutual funds that specialize in fixed income can complement equities and serve as a stabilizing force in diversified portfolios. Their lower correlation with stocks makes them an essential component of many asset allocation strategies.
Finally, evaluate the implications from federal income taxes. Income from fixed income investments is typically taxable at the ordinary income rate, which may affect after-tax returns. Some funds include municipal bonds to help reduce exposure to federal income taxes, so it’s worth factoring in your tax bracket.
Tips For Choosing The Right Income Fund To Invest In
Tip 1: Watch the Turnover Rate
A high turnover rate in bond mutual funds may signal frequent trading, which can lead to higher costs and tax inefficiencies. Lower turnover often aligns better with long-term fixed income strategies focused on stability.
Tip 2: Look for Diversified Sector Exposure
Strong income funds often include a mix of fixed income securities across real estate, corporate, government, and mortgage-backed sectors. This type of sector diversification can enhance returns and reduce exposure to any single economic risk.
Tip 3: Check Liquidity and Redemption Terms
Some mutual funds, particularly those holding less liquid fixed income instruments, may have restrictions on redemptions or delays in payouts. Ensure the fund aligns with your cash flow needs and liquidity preferences.
