Passive income is the ideal for many investors. The thought of collecting regular payments, whether to support retirement plans or to supplement an income, is an appealing proposition.
Among younger generations, the idea of generating a passive income is "all the rage", according to Hal Cook, senior investment analyst at Hargreaves Lansdown, whether it is from a side hustle like YouTube streaming or producing TikTok videos, renting out rooms in a home, placing property on Airbnb for holidays or from investments.
For investors, the key to focus on is the yield. A yield of 3% would provide an annual income of £1,500 on an initial £50,000. Up this figure to 5% and the initial lump sum needed drops to £30,000.
Typically, fund yields are calculated based on the amount paid in the previous year versus the current share price. As a result, the yield can vary. Below, Cook highlighted three funds that have a yield above 5%.
Artemis High Income
His first selection is Artemis High Income, managed by David Ennett and Jack Holmes alongside FE fundinfo Alpha Manager Ed Legget. It had a yield of 5.96% at the end of June.
"As the name suggests, it focuses on paying a high income to investors," said Cook.
The £939m fund invests mainly in bonds but can also invest up to 20% in UK and European shares and has a strong track record in the IA Sterling Strategic Bond sector, sitting in the top 10 of the peer group over one, three, five and 10 years.
Performance of fund vs sector over 10yrs
Source: FE Analytics
"A focus on high-yield bonds and shares that pay a dividend makes it a little different from most bond funds and a higher-risk option," Cook said.
"So, the fund could be a good way to diversify a more conservative income portfolio, with the potential to increase the overall income paid."
Royal London Corporate Bond
Staying with bonds, Royal London Corporate Bond has the highest yield of the three funds selected at 6.12% at the end of June 2026.
It focuses on investment grade bonds and aims to provide an income alongside some capital growth.
The £1.6bn fund is run by Alpha Manager Shalin Shah alongside Matthew Franklin and, like Artemis High Income above, has a stellar track record.
It has been a top-10 performer in the IA Sterling Corporate Bond sector over one, three, five and 10 years, with its 31.5% gain over the decade the fourth-best performance in the peer group.
Performance of fund vs sector over 10yrs
Source: FE Analytics
"It usually invests some of the fund in unrated bonds (whose credit quality hasn't been assessed by a credit ratings agency)," said Cook, which means it is investing in areas that "often get less attention from investors".
This suggests the managers have the potential to add value, although it does also come with a higher risk than more mainstream investments.
Overall, he said the fund could form part of an income portfolio focused on the long term and provide some bond exposure to a portfolio more focused on company shares.
Ninety One Diversified Income
Last but not least, the Ninety One Diversified Income fund aims to provide an income with potential for capital growth. It invests mainly in government bonds from around the world but can invest in some company shares too. Overall, it aims to limit its volatility to less than half of the UK stock market.
"We consider this fund to be a step up in risk from cash, with potential for losses, while providing a consistent income over time," said Cook, who noted the fund could form part of an income portfolio, providing some stability compared to more adventurous funds.
"Investors should note that the fund can make investments in emerging markets and derivatives, which add risk," he said, although it resides in the IA Mixed Investment 0-35% Shares sector, which is the lowest-risk of the main multi-asset peer groups.
Performance of fund vs sector over 10yrs
Source: FE Analytics
Managed by John Stopford and Jason Borbora-Sheen, the £839m fund had a yield of 5.2% at the end of June 2026.
It has struggled more recently, residing in the bottom quartile of the peer group over one and three years, although its longer-term figures are above the average, as the chart above shows.