When Do Bond Funds Distribute Income?

Bond funds offer you the opportunity to establish a steady income stream from your investments. According to "The Wall Street Journal," funds that hold bonds that mature in five to 10 years pay 2 percent to 3 percent of your investment as income annually. Funds with bond maturities of 10 years or more pay around 4 percent. You need to know when these bond funds pay out that income, so you can plan your expenditures.

Monthly

The vast majority of bond funds pay interest monthly. The exact date is set by the fund, because no regulations dictate distribution dates for bond funds. You can elect to receive a paper check, or to have the funds electronically transferred to your checking account, or to reinvest the interest payments in the bond fund. If your fund levies a sales charge each time you purchase, you might be better off collecting several month's income and then investing it in the fund all at once. That way, you will pay only one transaction charge. For example, you could wait until you had $1,000 in fund distributions in your checking account, then send that money to the fund to purchase more shares.

Quarterly

Some bond funds pay interest quarterly. Because you are paid every three months, divide each quarterly payment into thirds and use only that portion of your bond fund income each month. For example, if you receive $1,000 every quarter, plan to spend $333.33 each month.

Yearly

Federal regulations require bond funds to pay at least once a year. Some funds choose this option. The exact date of payout is up to the fund. If you receive a single annual payment from your fund, you probably aren't planning to live off of that money. In such a case, you can use the money to invest in another type of investment, such as stock funds. This can help balance out your approach to investing, giving you exposure to both the bond market and the stock market. If you do plan to live off of bond fund income that you receive once a year, you can make more money by parking it in a money-market fund and withdrawing part of it for each month's expenses.

Capital Gains

Capital gains differ from interest. Capital gains come from selling bonds at a profit. When a fund does this, it distributes your share of that profit to you. Bond funds distribute capital gains once a year. Keep a record of capital gains distributions, because your tax return must report them separately from interest income. You pay a different tax rate on capital gains than you do on bond fund interest.