Even during a market downturn, the demand for essential services such as those provided by utilities, remains virtually unchanged. Utilities mutual funds are therefore an excellent choice for investors seeking a steady income flow through consistent yields from dividends. This is also why they are primarily considered to be a relatively more conservative investment option. In recent times their forays into emerging markets have led to appreciably higher returns and they can offer superior returns at a relatively lower level of risk.

#1 Strong Buy

Gabelli Utilities AAA ( GABUX ) invests at least 80% of its assets in utilities companies. It focuses on firms providing electricity, gas and water services or equipment for these industries. It also invests in the telecom industry and looks to gain from regulation and consolidation in the utilities sector. This utilities mutual fund has a five year annualized return of 6.64%.

Mario J. Gabelli is the fund manager has managed this utilities mutual fund since 1999.

Fidelity Select Utilities ( FSUTX ) seeks capital growth. The fund invests the majority of its assets in utility companies or those deriving a large share of their revenues from operations in this sector. It is non-diversified and may purchase foreign securities. It may also invest a large share of its assets in a single issuer. It is a no-load fund.

The utilities mutual fund returned 10.94% in the last one year period and has a five year annualized return of 4.53%.

Fidelity Advisor Utilities A ( FUGAX ) invests the majority of its assets in public utility companies as well as firms deriving a large share of revenues from related operations. It purchases both domestic and foreign securities. The utilities mutual fund has a ten year annualized return of 2.79%.

The utilities mutual fund has a minimum initial investment of $2,500 and an expense ratio of 1.22% compared to a category average of 1.43%.

Vanguard Utilities Index Admiral Shares ( VUIAX ) seeks to track the performance of the MSCI U.S. Investable Market Utilities Index. This is index consists of companies in the utilities sector regardless of their market capitalization. The fund uses a passive management investment approach to track the index. This utilities fund returned 6.95% over the last one year period.

As of September 2010, this utilities mutual fund held 89 issues, with 6.52% of its total assets invested in Southern Company.

Franklin Utilities A ( FKUTX ) invests the majority of its assets in securities of public utility companies. These include companies which produce or distribute electricity, natural gas and water. The fund also purchases securities of communications services companies and service providers for public utilities. The fund returned 6.85% in the last one year period and has a ten year annualized return of 5.73%.

John Kohli is the fund manager has managed this utilities mutual fund since 1998.

To view the Zacks Rank and past performance of all utilities mutual funds, then click here .