High income mutual funds

A few mutual fund companies have developed funds that invest in a portfolio of real estate investment trusts and royalty income trusts. Among the most prominent are Royal Monthly Income Fund and Guardian Monthly High Income Fund. The portfolios are designed to minimize risk; however, that didn’t prevent them from getting hurt when the royalty trust market hit the skids in the late 1990s. As a result, many investors have been scared off these investments.

These funds essentially offer the same risks and advantages as the underlying securities in which they invest. Cash flow will be above average, but you may suffer a loss in unit values. They should be used judiciously in a RRIF and should not form more than 10% of any plan.

Adapted from Gordon Pape’s 2001 Buyer’s Guide to RRIFs and LIFs, published by Prentice Hall Canada.