This category of funds seeks a high level of current income without undue risk. They invest primarily in dividend-paying stocks, bonds, and/or bonds convertible into stocks of companies with long-term growth potential.
Funds that seek current income by investing a minimum of 65% of their assets in dividend-paying securities. Equity income funds are most akin to value funds in their investment philosophy because stocks with high dividend yields tend to be the cheapest stocks. Since dividends are the primary criterion by which these funds select stocks, they often lose out on capital appreciation. This means that as the market rallies, these funds will often lag. Conversely, when the market declines, the income generated by the stocks held in equity income funds provides a buffer against losses.