What Are Equity Income Funds - And Why Do Investors Love Them?
By Boring Money
6 May, 2025
Journalist Cherry Reynard examines the investments that give you an income and asks for recommendations from the fund pros.
If you told me I had to pick just one type of investment, it would probably be an equity income fund. Think of it as the potato of the investment world – it’s not exciting, but no meal is really complete without it!
What is an equity income fund?
Equity income funds are funds which invest in shares (equity) of companies that pay regular dividends (income). Unlike growth funds that chase rising share prices, equity income funds focus on generating a steady, reliable income, with a little capital growth on the side.
The companies in these funds’ crosshairs tend to be large, well-established names – think utilities, banks, and consumer goods giants – that have a track record of paying out dividends year after year. These payouts can be reinvested or taken as income, making equity income funds popular among retirees and anyone looking to supplement their income without selling down their investments.
But this isn’t just about pocketing a few extra quid every quarter. Over time, reinvested dividends can turbocharge returns thanks to the magic of compounding. And because dividend-paying companies are often more stable and less volatile, equity income funds can provide a bit of ballast in choppier markets.
How much income might I typically expect?
The income you receive from an equity income fund (the yield) can vary (just as company profits can vary). But, as these funds tend to invest in larger, more predictable companies with a strong history of paying dividends to their shareholders, most UK-focused equity income funds pay yields worth around 3.5-4.5% of your investment, while global equity income funds pay a little less.
The income from these funds should be comfortably ahead of inflation and, more importantly, should grow over time. That means if your £10,000 investment pays an income of £500 in the first year, it should pay £525 in the second year, and so on - gently increasing over time. That's compound interest in action.
As ever, stock market-based funds can bounce around a bit, and equity income funds are no exception. However, companies paying high and reliable dividends tend to be longer-established and more resilient. This means they will often bounce around a little less than others at times of market turbulence. Plus, you’re getting a little bit of your investment back every now and again in dividend payments, so changes in the capital value feel a bit less painful.
Having said all this, it’s a mixed sector and there are some pretty awful funds out there. Over the past three years, the top-performing fund is up 38%, while the worst fund is down 8% - so it pays to pick with care. With that in mind, we’ve asked a couple of experts to pick their top equity income funds to invest in in 2025.
Best equity income funds in 2025
CT UK Equity Income
Darius McDermott, Managing Director of Chelsea Financial Services, recommends CT UK Equity Income. He says:
We like that the manager of this fund is very focused on capital preservation. Although the fund is concentrated, its largest investments will be into strong, well-diversified businesses and he is not afraid to ignore whole parts of the market. He looks specifically for companies that can bank-roll their own growth and meet their own capital expenditure requirements.
Artemis Income
Also on Darius’s list is the Artemis Income fund, run by Adrian Frost - a stalwart of the UK equity income sector for two decades, with an excellent team behind him, plus a strong process and a long-term track record.
The fund has a bias towards large-cap equities, and Frost likes 'special situations'. McDermott adds:
These tend to appear in many different sectors but are driven by similar catalysts: management change, recovery, and industry restructuring. However, all the investments in Artemis Income fund have further similarities: they all have a strong franchise and often a unique product; they all have a quality management team; and most of them have been market darlings at some point.
Interactive investor's Dzmitry Lipski also likes the Artemis Income fund, pointing to the focus on:
Stable, well-established businesses with the financial strength to pay solid dividends to shareholders. It provides a solid, core UK large-cap equity income exposure for investors.
Guiness Global Equity Income
McDermott's other choice is a global equity income fund - Guinness Global Equity Income. The fund is concentrated on a small number of stocks, and invests only in high quality companies. It operates a one-in, one-out philosophy. meaning the fund manager has to stay focused on his best ideas.
Fidelity Global Dividend
Lipski also suggests another global equity income fund, Fidelity Global Dividend, which aims to deliver both income and long-term capital growth, targeting yield at least 125% of that on the MSCI All Country World Index. He says:
The portfolio concentrates on high-quality mega-cap companies in developed markets, investing across a variety of sectors and geographies, providing diversification. The manager adopts a conservative strategy, focusing on companies with clear business models, healthy cash flows, and have minimal debt. Daniel Roberts has managed the fund since January 2012 and has support from Fidelity’s global team of around 130 research analysts.
Best-selling funds of the month
Curious about what other investors are buying at the moment? Check out our monthly round-up of the best-selling funds, where we list the top 10 most-bought funds on the UK's most popular investment platforms.
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