Markets are about to close one of the worst years in recent times, as fears of an impending recession loom large on the U.S. economy. The Fed has hinted at additional rate hikes through 2023, which has alarmed investors and is taking a toll on stocks.

Even though inflation has slowed over the past couple of months, it’s still at a multi-year high, compelling the Fed to continue with its aggressive rate hike policy. Given this situation, income-seeking investors should go for funds that have more exposure to stocks providing handsome dividends.

Thus, funds like Franklin High Income Fund Advisor Class (FVHIX Quick QuoteFVHIX - Free Report) , AB All Market Real Return Portfolio Class C (ACMTX Quick QuoteACMTX - Free Report) and AB Global Risk Allocation Fund Class I (CABIX Quick QuoteCABIX - Free Report) are likely to benefit in the near term.

Rate Hikes to Continue

Market participants were optimistic till early December as the Fed indicated that it could go slow on its pace of interest rate hikes. The Fed did keep its promise by hiking interest rates by 50 basis points after going for four consecutive hikes of 75 basis points earlier.

The current cumulative interest rate, which is in the 4.25-4.5% range, is the highest since 1980, indicating that despite steep interest rate hikes, inflation is still quite high.

Fed Chair Jerome Powell also made it clear that the central bank will continue to hike interest rates in 2023 and cautioned that its fight against surging inflation is far from over. He also said that significant questions, including how much and how long interest rates would need to be raised,           remain unanswered.

The Fed’s hint at further rate hikes in 2023 comes despite the consumer pricing index (CPI) data for November reflecting a 7.1% year-over-year rise in inflation, lower than the record high of 8.2% in September and 8.3% in August.

Investors are worried that higher interest rates could make the economy suffer further and push it into a recession, as inflation is still a lot above the Fed's target of 2%.

Geopolitical concerns have also caused markets to become uneasy. The supply chain is being impacted by the current Russia-Ukraine conflict, which contributed to a global shortage of oil and gas.

Additionally, the worsening COVID-19 situation in China, which has raised fears of fatalities in millions, has reduced business and consumer activity. These have been impacting markets and businesses worldwide.

Top 3 Dividend Mutual Funds to Buy Now

Rising interest rates have raised fears of a global slowdown and may lead to further uncertainty in the coming days. Given this scenario, income-seeking investors should go for mutual funds that invest in dividend-paying equities to get the regular cash they need.

We have selected three such mutual funds that offer a goods dividend yield, have given impressive 3-year and 5-year annualized returns, boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), offer a minimum initial investment within $5,000 and carry a low expense ratio.

The question here is why should investors consider mutual funds? Reduced transaction costs and diversification of portfolios without the several commission charges that are associated with stock purchases are the primary reasons why one should be parking their money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

Franklin High Income Fund Advisor Class fund aims for high current income. FVHIX also aims for capital appreciation as much as possible, consistent with the fund's principal goal by investing primarily in high-yield, lower-rated debt securities. Franklin High Income Fund Advisor Class fund has a 3-year and 5-year annualized return of 1.3% and 2.6%, respectively. FVHIX has a Zacks Mutual Fund Rank #2.

AB All Market Real Return Portfolio Class C fund seeks to invest in a balance of asset types, like stocks, bonds, and cash, and including precious metals or commodities is not unusual. ACMTX’s 3-year and 5-year annualized returns are 8% and 4.5%, respectively. AB All Market Real Return Portfolio Class C fund has a Zacks Mutual Fund Rank #2.

AB Global Risk Allocation Fund Class I seeks high returns through a combination of current income and capital appreciation. CABIX invests principally in a diversified portfolio of equity and fixed-income securities such as common and preferred stocks, U.S. Government and agency obligations, bonds and senior debt securities. AB Global Risk Allocation Fund Class I’s 3-year and 5-year annualized returns are 6.1% and 4.5%, respectively. CABIX has a Zacks Mutual Fund Rank #1.

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