Income investing has gained popularity of late: on the list of 10 best-selling mutual funds in the first quarter of this year, four fall into the income category: Capital Income Builder, Capital World Growth & Income, Income Fund of America and the Franklin Income Fund.

Investors have flocked to these funds seeing them a way to protect their investments against speculation, with the interest spurred by tax breaks given to dividend income that are now in the same tax category as long-term capital gains.

Analysts, however, worry if this surging interest will not jeopardize safety of investors’ funds.

``We have great respect for dividend-paying ability as an indicator of quality,’’ says Tom McManus, chief investment strategist in New York at Banc of America Securities LLC. ``But today’s investor seems to be chasing high current income without regard for growth or safety.’’

Many such funds include in their portfolios scandal-ridden names, pharmaceutical giants Merck & Co. and Pfizer Inc., Fannie Mae and insurance company Marsh & McLennan Cos. These holdings are mixed with oil and gas stocks, real-estate investment trusts, and bank stocks. For instance, REITs that showed stellar performance in the past few years, with a 21.7 percent annual gain in the Standard & Poor’s REIT Composite index from the end of 1999 through the end of 2004, lost 7.5 percent in 2005 on concerns about a potential housing bubble.