Concept
What is a covered-call fund?
Direct answer A fund that owns an index or a basket of stocks and sells call options on it, usually monthly. The option premium becomes a large payout, and the fund gives up the index's gains above the option's strike price. Over long samples the strategy captures slightly less of the upside than the downside, and the large funds trail their indexes by 4 to 11 points a year over their own published windows.
The tax character of the payout depends on the instrument inside: structured notes produce ordinary income, index options produce 60/40 gains, and funds that pay more than they earn produce return of capital. Read income ETFs are income products, not tax products.