What type of fund primarily invests in stocks that pay dividends?

The type of fund that primarily invests in stocks that pay dividends is known as an equity income fund. This kind of fund focuses on generating income for investors through dividends, which are cash payments made by companies to their shareholders. Equity income funds typically invest in established, financially stable companies that are known for providing consistent dividend payouts. The primary goal of these funds is to provide investors with a steady stream of income along with potential capital appreciation from the stock investments.

In contrast, an equity growth fund primarily targets stocks with the potential for capital growth rather than focusing on dividend payments, aiming for long-term appreciation as opposed to income. A balanced fund includes both stocks and bonds and aims to provide a mix of growth and income, but does not specifically prioritize dividend-paying stocks. A money market fund, on the other hand, invests in short-term, low-risk securities and offers liquidity and safety over high returns, typically yielding very low income compared to equity income funds.

Understanding these distinctions is vital for investors seeking to align their investment strategy with their financial goals, specifically regarding income generation versus growth potential.