At the time of choosing a mutual fund scheme to invest, investors tend to keep in mind a slew of factors. Some investors emphasise on the potential to pocket a high rate of returns, some want a greater stability of funds, while others want a regular flow of income.
Different categories of mutual funds help investors attain specific objectives. Those investors who want regular flow of income from their mutual fund investors tend to choose dividend yield funds.
What are dividend yield funds?
These are the mutual fund schemes that invest in equity and equity-related instruments of companies that offer regular dividend to investors.
Since dividend is announced only by firms that boast of healthy financials, these funds, therefore, invest in the companies that have robust financial statement and a good cash flow.
Funds in this category
As of now, there are eight mutual fund schemes in this category, shows the AMFI (Association of Mutual Funds in India) data. Net assets under management (AUM) as on Jan 31, 2023 were ₹10,252 crore, marginally higher than ₹9,593 crore, the corresponding figure a year ago.
A few of the funds in this category have given a three-year CAGR (compound annual growth rate) return of as high as 20-26 percent. For instance, Aditya Birla Sun Life Dividend Yield Fund gave a return of 20 percent.
ICICI Prudential Dividend Yield Equity Fund gave a return of 26.73 percent, and Sundaram Dividend Yield Fund gave a CAGR return of 18.10 percent.
|Mutual fund||Return (%)|
|ABSL Dividend Yield Fund||20|
|ICICI Pru Dividend Yield Equity Fund||26.73|
|Sundaram Dividend Yield Fund||18.10|
(Source: AMFI; Regular returns as on Mar 3, 2023)
The latest scheme to be launched in this category is SBI Dividend Yield Fund that was closed for subscription on March 6, 2023.
Although this scheme, just as other mutual fund schemes, in this category, is meant for investors who are looking forward to a regular stream of income.
Experts assert that by the design of these schemes, the securities in which these schemes invest are not growth stocks, and that explains the existence of small size of this category.
“Dividend yield fund is not a very popular category. The fund managers are restricted to holding only high dividend-paying stocks, so they are not particularly growth-oriented. Hence there are only eight schemes in this category. However, these funds have very low drawdowns and outperform other funds during market downturns,” explains Rajani Tandale, Product Head, Mutual Fund, 1finance.co.