Dividend yield funds are slowly attracting investor attention given their tax efficiency and the ability to limit the downside of a portfolio during volatile market conditions, reported The Economic Times.
This category of funds has attracted inflows of ₹6,542 crore over the past two-and-a-half years compared with an outflow of ₹600 crore in the 18 months ended December 2020, according to the data from the Association of Mutual Funds in India (AMFI).
"Given the high market volatility over the past three years, it makes sense to invest in companies which are not only profitable but also provide dividends to shareholders," said Harshvardhan Roongta, CFP, Roongta Securities. He added that such companies are safe havens as they protect the downfall of the portfolio value to a certain extent, ET wrote.
In terms of taxation, it is profitable to invest in dividend yield funds rather than directly buying the stocks of dividend paying companies.
Another reason for the rising popularity of dividend yield funds is improving profitability of the public sector undertakings (PSUs), which form a large part of dividend yield funds.
PSUs such as BPCL, SAIL, BHEL, REC, Power Finance Corporation, Hindustan Aeronautics, Engineers India and Coal India have either turned profitable or recorded stable or increasing profits. This has added to the attractiveness of these funds.