The goal of fixed income funds is to provide high current income consistent with the preservation of capital. Growth of capital is of secondary importance.

Income funds that invest primarily in common stocks are classified as equity income funds (see next listing). Those that invest primarily in bonds and preferred stocks are classified as fixed-income funds. These funds invest in corporate bonds or government-backed mortgage securities that have a fixed rate of return.

Since bond prices fluctuate with changing interest rates, there is some risk involved despite the fund's conservative nature. When interest rates rise, the market price of fixed-income securities declines and so will the value of the income funds' investments. Conversely, in periods of declining interest rates, the value of fixed-income funds will rise and investors will enjoy capital appreciation as well as income.

Fixed-income funds offer a higher level of current income than money market funds, but a lower stability of principal. They are generally more stable in price than funds that invest in stocks. Within the fixed-income category, funds vary greatly in their stability of principal and in their dividend yields. High-yield funds, which seek to maximize yield by investing in lower-rated bonds of longer maturities, entail less stability of principal than fixed-income funds that invest in higher-rated but lower-yielding securities.

Some fixed-income funds seek to minimize risk by investing exclusively in securities whose timely payment of interest and principal is backed by "the full faith and credit" of the U.S. Government. These include securities issued by the U.S. Treasury, the Government National Mortgage Association ("Ginnie Mae" securities), the Federal National Mortgage Association ("Fannie Maes") and Federal Home Loan Mortgage Corporation ("Freddie Macs"). All are backed by pools of mortgages.