Income: An investment strategy that seeks to provides over time attractive after-tax returns with moderated risk from a balanced portfolio of government, corporate, or municipal bonds, stocks and cash equivalents. Income funds invest primarily in quality bonds, with a secondary emphasis on stocks of established well-known companies.

Income dividend: Payments to fund shareholders of dividends and interest earned by securities held by a fund. Income dividends are paid after deducting operating expenses.

Income fund: A fund that seeks current income rather than growth of capital. Income funds typically invest in bonds and/or high-yielding stocks.

Income risk: The possibility that the income provided by a fund will fluctuate due to changing interest rates. Money market funds and short-term bond funds are most subject to income risk.

Indenture: The formal contract governing a corporate bond that explains the bond's maturity, coupon rate, call privileges, and other rights.

Index: Usually, a number calculated by weighting a number of prices or rates according to a set of predetermined rules. A financial market index is a statistical construct that measures relative or absolute price changes and/or returns in stock, fixed income, currencies, or futures markets. The purpose of the index calculation is usually to provide a single number whose behavior is representative of the movements of a variety of prices or rates and indicative of behavior in a market. Indexes serve as the underlyings for a number of products, particularly in equity and fixed-income markets.

Index fund: A fund designed to track the performance of a market index. Most common among stock funds, but used in fixed-income markets as well.

Index shares: A subset of exchange-traded funds (ETFs) based on an index and implemented by holding an index portfolio.

Index tracking: A reference to the correlation between a portfolio's return and the return on a benchmark index, or, alternately, to the portfolio's tracking error relative to the index. Many equity index funds and enhanced index portfolios are managed with close attention to index tracking. See also Tracking Error

Indexation: (1) A relatively passive investment strategy that attempts to replicate the return of a benchmark index in a fund. (2) The practice of linking the coupon on a debt security to an index of inflation.

Index plus: See Enhanced Indexing.

Individual retirement account (IRA): A retirement plan that allows individuals to contribute money on a tax-deferred basis to a retirement account each year.

Inflation: A rise in the prices of goods and services, often equated with loss of purchasing power.

Initial offering date: The date a portfolio is first available for sale.

Initial public offering (IPO): A company's first public offering of common stock.

Initial sales charge: The sales charge paid by the investor at the time of purchase.

In-kind: See distribution-in-kind.

Institutional investor: An organization that trades large volumes of securities. Examples are mutual funds, insurance companies, pension funds.

Interest rate risk: The risk that a security or fund will decline in price because of changes in market interest rates.

Interest-only obligation (or IO obligations): A tranche of mortgage-backed securities whose owner receives only the interest (or a portion of the interest) on the underlying mortgages. During a period of falling interest rates, rapid repayments of principal by mortgage holders reduces the value of the interest-only obligations.

Investment advisor: An individual or organization that manages a portfolio and makes day-to-day investment decisions regarding the purchase or sale of securities.

Investment club: A group of investors who pool their money and knowledge to make investments, learn about investing and diversify their portfolios.

Investment company shares: The technical name for many closed-end fund, open exchange-traded fund and preferred fund shares which are governed by rules established in the Investment Company Act of 1940.

Investment Company Act of 1940 ( 40 Act): The legislation and associated regulations which govern the regulation of the fund (mutual, closed-end, exchange-traded, preferred) and investment advisory industries. This act stipulates the conditions that funds and investment advisors have to meet in order to distribute their products and services to the general public.

Investment grade: Bonds whose issuers are judged by an independent rating service such as Standard & Poor's or Moody's Investors Service to very able to pay interest and repay principal. Standard & Poor's and Moody's Investors Service designate bonds in their top four categories (AAA/Aaa, AA/Aa, A, and BBB/Baa) as investment grade.

Investment horizon: The length of time an investor expects to keep a sum of money invested.

Investment objective: Formally, a provision in the prospectus of a fund that states the principal requirements and limitations that constrain the investment advisor's range of action in management of the fund portfolio. Investment objectives are generally stated in broad terms such as growth of capital or investment income, but they are occasionally highly specific, particularly when they pertain to restrictions on investment flexibility.

Investment style: A broad indicator of a fund's investment emphasis. For stock funds, the investment style indicates whether a fund emphasizes stocks of large-, medium, or small-capitalization companies and whether it emphasizes stocks with growth or value characteristics or a blend of these characteristics.