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For many conservative investors, term deposits have long been a go-to choice for a reliable, low-risk return. They offer a sense of security, a guaranteed return, and the comfort of knowing exactly when the money will be available. But in today’s low interest rate environment, the returns from term deposits and even bonds feel underwhelming. With inflation creeping higher and the cost of living continuing to rise, those once-reliable income streams no longer pack the same punch.

So, what’s a conservative investor to do? How can they find a way to earn steady returns without taking on significant risk? This article highlights how monthly income funds in Australia provide a solution for investors seeking predictable returns with lower volatility.

The Dilemma Facing Conservative Investors

The issue here is straightforward: in a low-interest-rate world, traditional income-generating investments like term deposits and government bonds are offering lower returns than many investors are comfortable with. For retirees, this can be a real challenge. With limited growth opportunities in safe investments, it can feel like there’s no way to preserve capital while generating enough income for ongoing expenses.

The market swings, the ups and downs, it’s enough to make anyone wary of venturing beyond the most conservative of investments. The challenge for many is finding income-focused alternatives that are risk-managed but provide consistent returns, even when the market is volatile.

What Are Monthly Income Funds?

Monthly income funds are essentially pooled investment vehicles that focus on providing a consistent income stream through credit or asset-backed loans. These funds invest in mortgages, commercial loans, or other types of private credit. By pooling together various loans, the fund spreads out the risk, aiming to offer a stable return to investors monthly.

Monthly income funds in Australia tend to offer more reliable cash flow than equities or traditional bonds, making them a good fit for those looking for regular income to cover living expenses or reinvest.

Interest payments from the loans held by the fund are passed on to investors as monthly distributions. This means investors can expect a relatively consistent income stream. Unlike the lump sum payouts of term deposits, monthly income funds tend to offer a steadier rhythm of returns, which can make financial planning and budgeting a bit easier.

Benefits for Conservative Investors

1. Steady Monthly Distributions for Budgeting

The standout benefit of monthly income funds is the regularity of income they provide. For conservative investors, retirees, or those nearing retirement, monthly distributions offer a steady cash flow that can be used for things like living expenses, paying bills, or reinvesting in other areas of their portfolio.

2. Asset-Backed Lending Strategies That Preserve Capital

Monthly income funds focus on asset-backed loans, which means there’s collateral tied to the loans they hold. This helps to preserve capital, reducing the risk of a total loss. If a borrower defaults, the assets backing the loan can be liquidated to recover at least some of the investment.

3. Low Correlation to Equity Market Volatility

Another aspect of monthly income funds is that they tend to have low correlation with the stock market. This is important for conservative investors who are concerned about the ups and downs of equities. If the stock market dives, the returns from these funds may remain stable, offering a buffer against broader market volatility.

4. Professionally Managed Portfolios with Credit Risk Oversight

Monthly income funds are managed by professional fund managers who have the expertise to assess credit risk and make investment decisions. This can give conservative investors the peace of mind that their money is being managed by experienced professionals, with a focus on minimising risk.

Key Considerations and Risks

While monthly income funds can be an attractive option, it’s important to approach them with caution.

1. Wholesale Investor Eligibility

Some monthly income funds may have eligibility requirements, such as a minimum investment threshold or qualification as a wholesale investor. So, it’s crucial to check whether the fund fits your investment profile before getting involved.

2. Importance of Fund Due Diligence

Not all monthly income funds are created equal. Some may carry more risk than others, depending on the types of loans they invest in or their overall strategy. Due diligence is key; investors should carefully review the fund’s track record, management team, and investment philosophy before committing.

3. Understanding Redemption and Liquidity Terms

Monthly income funds have specific terms around redemption and liquidity. This means it may not be as easy to access your funds immediately as it would be with a term deposit. It’s important to understand these terms and ensure they align with your liquidity needs.

Australian Context: Why This Strategy Works Locally

With increasing sophistication among wholesale investors and a growing demand for fixed-income returns, many are looking for alternatives to the property market. Monthly income funds in Australia allow investors to gain fixed-income style returns without the exposure to the property market’s potential risks, like price volatility.

Soft Mention / Link to Rixon Capital

If you’re considering exploring monthly income funds, one option to look into is the Rixon Income Fund. Offering net monthly returns in the range of 0.92% to 1.00%, this fund is designed to deliver predictable income with a focus on capital stability. It’s an option that provides a well-structured, risk-managed way for conservative investors to diversify their portfolios.

Conclusion

For conservative investors who are tired of the low returns from term deposits and bonds, monthly income funds present a compelling alternative. They provide predictable, regular income with lower risk and can offer a much-needed cushion against equity market volatility. While they do come with their considerations, monthly income funds could be the diversification strategy that balances income needs with risk tolerance.

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