Australian investors searching for consistent returns in 2025 are giving income funds a fresh look. With a shifting economic climate, regulatory changes, and a renewed appetite for yield, income funds have become a go-to solution for those balancing risk and regular cash flow. But what exactly are income funds, how are they evolving, and what should you know before investing?

What is an Income Fund?

An income fund is a managed investment fund designed to generate regular income for its investors. These funds typically invest in a mix of assets like government and corporate bonds, high-dividend shares, property trusts, and sometimes alternative income-generating assets. The goal? Deliver steady distributions, usually monthly or quarterly, while aiming to preserve capital.

Fixed income focus: Most income funds tilt towards bonds and credit, providing more stability than growth-oriented funds.
Diversification: Exposure to a range of income-producing investments helps smooth returns, even when markets wobble.
Accessibility: Available via managed funds, ETFs, and superannuation platforms.

2025 Policy Changes & Market Trends

The landscape for income funds has shifted notably in 2025, driven by both regulatory changes and macroeconomic forces. Here’s what’s new this year:

ASIC’s Enhanced Disclosure Rules: As of March 2025, income funds must provide clearer breakdowns of their underlying assets and disclose liquidity risks in plain language. This move aims to prevent the liquidity mismatches that rattled some credit funds in recent years.
Interest Rate Plateau: After aggressive RBA rate hikes in 2023-2024, the cash rate has stabilised around 4.1%. This has made high-quality bonds and hybrid securities more attractive, boosting income fund yields to levels not seen since the mid-2010s.
ESG Integration: The majority of new income funds launched in 2025 now integrate environmental, social, and governance (ESG) filters. Investors can select funds that align with their values, without sacrificing yield.
Retirement Income Covenant: Super funds are under more pressure to offer income-focused investment options, leading to innovative multi-asset income funds specifically designed for retirees.

For example, AustralianSuper’s Enhanced Income Option now includes allocations to private credit and infrastructure debt, aiming for a 5-6% annual yield with quarterly distributions.

Are Income Funds Right for You?

Income funds can be an effective tool for:

Retirees: Seeking regular cash flow to supplement the Age Pension or drawdowns from superannuation.
Pre-retirees: Wanting lower-volatility returns and a smoother ride compared to shares.
Income-oriented investors: Building a defensive core for their portfolio, especially as term deposit rates remain below inflation.

But they’re not without risks. Credit quality, interest rate movements, and liquidity all matter. In 2025, with global bond volatility still elevated, choosing a well-managed, transparent fund is crucial.

Watch out for: Funds promising unusually high yields (often a red flag for excessive risk).
Liquidity considerations: Check if you can access your money quickly, especially if the fund holds less-liquid assets.
Tax implications: Distributions are typically taxable, so consider the impact on your after-tax returns.

How to Compare Income Funds in 2025

When selecting an income fund, look beyond headline yield. Here are the key questions to ask:

What’s the fund’s asset mix? Is it mostly government bonds, corporate credit, or something else?
How is risk managed? Does the manager hedge interest rate or currency risk?
What are the fees? Lower fees mean more of the income lands in your pocket. The average fee for retail income funds in Australia is now around 0.60% p.a. in 2025.
Is it listed (ETF) or unlisted (managed fund)? ETFs offer easier entry/exit, while unlisted funds may have additional withdrawal restrictions.

For example, the Betashares Australian Investment Grade Corporate Bond ETF (CRED) has seen strong inflows this year, thanks to its transparent portfolio, competitive fee, and monthly distributions.

Final Thoughts

Income funds are back in the spotlight for Australians wanting defensive returns and regular payouts in a changing world. The new regulatory landscape in 2025 means more transparency and choice for investors, but also greater scrutiny of risks. By understanding how these funds work and what’s changed, you can make informed decisions that suit your financial goals—whether you’re building wealth, protecting capital, or planning for retirement.