SBI Mutual Fund recently rolled out its SBI Dividend Yield Fund. The offer opened for subscription on February 20, 2023, and will close on March 06, 2023.
The idea behind the launch of this program is to offer investors the opportunity for capital appreciation and/or dividend by investing in a well-diversified portfolio of stocks and equity-related products that primarily pay dividends.
The scheme's performance will be evaluated against the NIFTY 500 TRI benchmark. This is not the first time that such a dividend yield fund has been launched. Before this, other asset management companies in India had launched such funds allowing investors to park their earnings in dividend-yielding stocks, albeit through the fund.
The following table lists similar funds in this category along with their past five-year returns.
| Name of the fund | Three-year returns (in %) | Five-year returns (in %) |
| Templeton India Equity Income Fund | 42.33 | 63.53 |
| ICICI Prudential Dividend Yield Equity Fund | 47.50 | 62.15 |
| Aditya Birla Sun Life Dividend Yield Fund | 32.84 | 47.66 |
| Sundaram Dividend Yield Fund | 25.86 | 43.05 |
| UTI Dividend Yield Fund | 24.14 | 40.14 |
| Source: MoneyControl | ||
What do analysts think?
A tête-à-tête with personal financial analysts reveals their views on whether or not investors must opt for this fund. Also, this being a new fund offer (NFO) has prompted many investors to inquire if it is worth their money.
Dev Ashish, Founder, Stable Investor, said, “Dividend yield category is a sort of defensive equity strategy as these funds primarily invest in shares of companies that provide regular dividends at a higher rate than the broader benchmark. For investors who would want to have a small allocation to so-called defensive stocks of mature companies paying dividends, this category could be a consideration. But since there are several existing schemes in this category with a longer track record, it is to be seen what new a fund can offer in this space coming from the largest AMC."
However, Viral Bhatt, Founder, Money Mantra, has mixed views on the same. Bhatt says, “Investors seeking regular income from their investments may find dividend yield funds appealing. However, it is important to note that dividend-yield funds are not risk-free investments. As with any investment, there is the potential for the value of the fund to fluctuate, and there is no guarantee that the fund will always pay a dividend.”
The concern is that this is an NFO, which means that investors have no clue how this fund would perform in the long run. Without parameters like previous year earnings, standard deviation, portfolio turnover, expense ratio, etc., inclined investors will not know how to evaluate this fund or whether it is worth considering.
“Investors do not need to go in for any thematic, sectoral, or conceptual funds. Flexicap funds are good enough for all needs. Moreover, it is wiser to avoid NFOs completely. Always invest only in funds with an excellent track record across market cycles,” added Muthukrishnan, a Chennai-based Certified Financial Planner.
Apart, does it make sense to limit investments to dividend-yielding stocks? The purpose behind parking money in mutual funds is to seek growth, which is not possible unless someone parks money in growth-oriented funds.
Rajani Tandale, Product Head – Mutual Fund, 1finance.co.in, said, “Dividend yield fund is not a very popular category in mutual funds. The fund manager will be restricted to holding only high dividend-paying stocks in this fund, so these are not particularly growth-oriented stocks, hence there are only eight funds with assets under management to the tune of roughly ₹10,000 crores. However, dividend yield funds have very low drawdowns and outperform other funds during market downturns.”
Including a dividend-yielding fund may not be as bad as some people think. It all boils down to your financial goals, your ability to digest risk and your idea of financial independence in the long run.
