Income Risk

The risk that the income stream paid by a fund will decrease in response to a drop in interest rates. This risk is most prevalent in money market and other short-term income fund strategies, rather than longer term strategies that lock in interest rates. This is an extension of the interest rate risk on an individual bond. 




|||The following example demonstrates the income risk in a short-term, fixed-income fund. If interest rates are 5%, the money market fund will pay out 4.75%. However, if interest rates suddenly drop to 2%, the fund's payout will have to drop to around 1.75% because it will be reinvesting its funds at the new rate.