Waiting for your stock prices to increase can be painful. However, some companies mitigate their shareholders’ pain by declaring quarterly or half-yearly dividends. This is precisely what dividend yield funds do by investing in stocks that yield dividends.
Take for example the Templeton India Equity Income Growth Direct Plan whose fundamental assets include equity stocks, cash and cash equivalents. Launched by Franklin Templeton India Fund, this fund like most other funds in its category is an open-ended fund. You can stay invested in this fund for a prolonged period to earn good returns.
As per the guidelines stipulated by the Securities and Exchange Board of India (SEBI), investments in this fund come under the “Very High Risk” category.
Templeton India Equity Income Growth Direct Plan
Launched on January 01, 2013, the current assets under management (AUM) amount to ₹1230 crores. The risk factor is too high considering the large proportion of investments being locked in equity instruments. This medium-sized debt fund charges a 1.65 per cent expense ratio.
The fund is benchmarked against NIFTY 50 - TRI as the primary index and NIFTY DIV OPPS 50 as the secondary index and can be bought to earn long-term returns. Considering the relatively high expense ratio charged by this fund, the returns from this long-term fund are a bit higher compared to other funds in this category.
The minimum amount you can invest in this fund is ₹5000 in a lump sum while you can make an added minimum investment of ₹1000 in a lump sum in this fund. The minimum investment you can make through systematic investment plans (SIPs) is ₹500. This fund does not attract any exit load barring investors who must pay one per cent exit load on redeeming the fund within a year.
Many investors inquire why they must invest in this fund more than any other. A comparative analysis of most income funds in this category underscores the exceptionally high returns that investors have earned by investing in it.
|Scheme Name||3-year Returns (in %)|
|IDBI Dividend Yield Fund - Direct Plan-Growth||20.60%|
|ICICI Prudential Dividend Yield Equity Fund - Direct Plan-Growth||18.68%|
|UTI Dividend Yield Fund - Direct Plan-Growth||17.49%|
|Aditya Birla Sun Life Dividend Yield Fund - Direct Plan-Growth||17.46%|
|Sundaram Dividend Yield Fund - Direct Plan-Growth||17.33%|
Staying invested for a prolonged period yields returns exceeding dividend-paying equity funds. This you can achieve by investing in this fund through systematic investment plans over a period ranging from 10 to 15 years. A comparison of this fund’s performance vis-à-vis other funds on regular monthly investments of ₹5000 in the past 10 years would have been earned.
Roughly 87.24 per cent of the fund’s holdings are in equity holdings while 12.76 per cent of the remaining capital is invested in cash and cash equivalents. With a major portion of the fund’s money parked in equity instruments, this fund is best suited for investors willing to benefit from the undulating movement in stocks while also seeking some solace in the stability of having cash and cash equivalents in the stock portfolio.
The returns factor
The scheme earns around 35.56 per cent returns in a year while the absolute returns over five years are 116.17 per cent. Since its inception, investors have earned 287.81 per cent absolute returns.
If the fund’s units are redeemed within a year of purchase, investors will have to pay long-term capital gain tax under the existing slab rates. The current tax rate is 10 per cent for gains exceeding ₹100,000, sans any cess or surcharge. However, for investors who redeem the fund units after three years of staying invested, gains will be taxed at 15 per cent post indexation benefits.
Disclaimer: Mutual funds are subject to market risks. Please read the offer document carefully before investing. Also, the Securities and Exchange Board of India has stipulated the latest guidelines categorising this fund under the “Very High Risk” category.