Do you know that you can get paid for saving your own money in 2025? Of course, we’re not talking about savings accounts that struggle to keep up with the rising inflation. Here, we’re talking about funds that pay you for holding. If you pay attention, you’ll notice a growing trend in DIY Investors, with statistics showing that about 45% of Canadian investors have adopted this trend.
But while it’s now clear that the right funds can transform your investment portfolio into a money-making machine in no time, selecting the perfect Fund in a pool of options may prove to be the real task. Here, this article will highlight some of the best passive income funds to help you make money while you sleep.
Features Of a Good UK Passive Investment Fund
The first step to choosing a good passive investment fund is by understanding what it is that makes these funds perfect. Well, a DIY fund should include several features such as:
- Consistent Yield: You want to evaluate past performance to ensure your desired option generates reliable dividend over time (3 – 7% annual interest).
- Diversification: Your preferred fund should include a mix of income-generating investments so other areas can thrive where one struggles.
- Low Management Fees: To ensure maximum returns from your fund, you must minimize MER by all means, including opting for options with low management fees.
- Tax Efficiency: Since taxes are a known constant, you may want to steer your investment in the direction with the least amount. Canadian dividends, for example, help limit double taxation and support tax efficiency.
- Reinvestment: If you want your interest to compound, then you may want to consider reinvestment options or DRIP (dividend reinvestment plans).
Top Dividend ETF for Monthly/Quarterly Income
With more and more people ditching their 9-5s for equity income funds, here are the top dividend ETF that guarantee monthly income:
- Vanguard FTSE UK Equity Income Index Fund: With a 4%+ yield rate and an expense ratio of just 0.14%, this is the most likely option for regular income in the UK equity market.
It tows the line of the famous quote from John C. Bogle, founder of Vanguard Group, “When returns are concerned, time is your friend. But where costs are concerned, time is your enemy.”
- iShares UK Dividend UCITS ETF (IUKD): This dividend fund has a slightly more concentrated portfolio that targets UK companies with high dividend payouts. Its guaranteed yield is around 5%, while it has a moderate expense ratio of 0.40%.
- Fidelity Global Dividend Fund: This is your perfect option if you intend to focus on quality dividend-paying stocks with a proven global track record. It is the best UK equity reasonable expense ratio and aims for consistent capital growth alongside income, with a strong focus on diversity and cash flow. Simply put, you don’t need to be bothered about getting back less than you invest with Fidelity dividends.
Best Bond Funds For Stability and Payouts
These funds are not focused on quick payouts. These funds balance yield with safety, making them ideal anchors for investors seeking passive income portfolio. The best bond funds for stability and payout include:
- Baillie Gifford Investment Grade Bond Fund
- Vanguard UK Investment Grade Bond Index Fund GBP Dist
- Liontrust Sustainable Future Monthly Income Bond Fund
- Alliance Trust Monthly Income Bond Fund
- M&G Corporate Bond Fund
- Royal London Corporate Bond Fund (Most reliable bond listed on the London stock exchange.
- Fidelity MoneyBuilder Equity Fund
REIT Funds
REIT is short for Real Estate Investment Trust funds, and it’s an investment pool that focuses on buying share from real estate investment trusts. These investment strategies basically grant you the opportunity to earn capital growth from real estate without necessarily being a landlord or owning a property.
According to Nareit (National Association of Real Estate Investment Trusts), “REITs offer investors the opportunity to own real estate without the hassle of property management, while delivering regular dividends and portfolio diversification.”
The benefits of this kind of funds can range from diversity to liquidity, with REIT as the bond manager. Also, because REITs are required to pay out at least 90% of their taxable income to shareholders as dividends, you can rest assured of steady income. But while you can expect little in the way of cash flow, the present performance is not a reliable indicator of future dividends.
Moreover, if you ever decide to step into the real estate market fully, REIT funds, in a way, subsidizes the amount of money you’ll need to make the transformation.
Building Your Own Passive Income Portfolio
Once you’ve explored the various options, the next step involves putting it all together. You can start by deciding the level of risk, value of investment, and preferred investment goals. If you want stable and reliable payouts with potential for capital multiplication, you may want to stick with bond funds and dividend ETFs.
But if you’re looking for growth while ensuring relevant income, then global equity income funds REITs and dividend-growth stocks are the way to go. But whichever you chose, make sure the fund fits your investment objectives. Also, remember that consistency is key, and keep reinvesting until you hit your income goal.
Next, you may want to stick with top performers. But then, the first step would be to seek personal advice from a financial advisor. They’ll help you assess your attitude to risk and flexibility to invest, helping you build a better reputation among investors.
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The bottom line is that with passive income funds, you’re not just investing in stocks, but building a money-making machine.
