Income-oriented mutual funds now look attractive to many
While the bulls were celebrating the first week of 1987 by crashing the Dow Jones industrial average through the 2,000 barrier, the mutual funds were toasting a landmark of their own. For the second year in a row, sales of mutual funds approximately doubled those of the previous year. Sales last year topped $211 billion, compared with $114 billion in 1985 and $45.8 billion in 1984, according to the Investment Company Institute (ICI).
When the average investor thinks of mutual funds, he or she thinks of investment companies that buy stocks. But 75 percent of the sales in 1985 and '86 were not in the stock funds that gave the industry its history and glamour, but in the far more conservative bond and income funds.
Here, investors can get the relatively high returns no longer available in money market funds and certificates of deposit - and somewhat more safety than is usually available with equity funds.
This year, the trend to income funds could become even greater. Also, there is likely to be renewed interest in ``total return'' funds, which stress income from interest or dividends as well as capital gains.
``The majority of people are conservative investors,'' observes Lewis J. Altfest, a financial planner in New York. ``Money market rates have been dipping, so people are looking for higher yields.''
Among the high-yield choices Mr. Altfest ticks off are Ginnie Mae funds, high yield (or ``junk'') bond funds, and longer-term corporate bond funds.
``Anyone who's put money in bond funds over the last few years has done very well,'' he says. ``Generally, they've done as well as the equity market.''
The trend toward income-oriented funds gets an additional boost this year from tax reform.
The increase in the capital-gains rate from a maximum of 20 percent to 28 percent, along with the elimination of the preferential rate on capital cains in 1988, makes income from interest and dividends even more valuable.