Income Risk

Income risk

The possibility that a portfolio's dividends will decline as a result of falling interest rates. Income risk is generally greatest for money market instruments and short-term bonds, and least for long-term bonds.

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Income Risk

The risk that the yield of a fund investing in short-term debt securities will decrease because of a decline in interest rates. For example, suppose a mutual fund invests in money market securities with maturities of less than a year. If interest rates decline, then the yield on the money market fund will also decline because when the money market securities mature, the returns are reinvested at lower interest rates. Income risk is the same concept as interest rate risk, but the former applies to funds, while the latter pertains to individual debt securities.