With nearly 30% returns in the past one year, should you look at dividend yield mutual funds in your portfolio?

Dividend yield funds refer to a category of mutual funds that invest primarily in companies with a strong potential to give regular dividend payout. As per the SEBI norms, a dividend yield fund invests at least 65 percent of its portfolio in dividend-yielding instruments.

These funds are considered apt for investors with low-risk appetite. These funds have low volatility and usually give good risk-adjusted returns over the long-run

Here we share the returns posted by these funds in past one year to draw comparison with their returns since inception.

As a category, these funds posted 27.94 percent return in past one year, as per Value Research data on April 11, 2022. This return, nevertheless, was relatively higher than the long-term return.

For instance, in past three years, dividend yield funds — as a category — posted 18.71 percent return and in past five years, the category gave a return of 13.38 percent.

In the immediate past, meanwhile, these funds -- just as most other categories -- didn't perform well.

In past one month, dividend yield funds collectively gave a return of 5.66 percent and -0.01 percent in past three months.

Returns by dividend yield funds as category

(Source: Value Research online)

Mutual fund schemes

There are only seven key mutual fund schemes under the category of dividend yield. All of them gave returns in the range of 20-38 percent in past one year.

This essentially means most of them managed to beat the benchmark data which is around 22-24 percent.

The highest return among these seven schemes was posted by ICICI Prudential dividend yield fund which gave a return of 38.9 percent as on March 31, 2022, as per the AMFI data. However, the top performer’s return since inception is quite low at 14.57 percent. On the other hand, HDFC Dividend yield fund posted a high return of 32.26 percent in past one year and it is a consistent performer with its return since inception hovering around 34 percent, according to the AMFI data.

Similarly, Aditya Birla Sun Life dividend yield fund’s one year return was 31 percent but its return since inception was quite low at 11.94 percent. Another fund that reported high performance in past one year but not in the long run is Templeton India Equity Income Fund that gave 30.54 percent return in past one year whereas its return since inception was 15.36 percent.

Also, IDBI dividend yield fund posted 22.41 percent return in one year and 20.35 percent since inception.

Returns posted by different mutual fund schemes

(Source: amfiindia.com; data as on March 31)

It’s important to weight all the pros and cons before making investment in a fund. Return from a fund on a particular day or at the end of the month or year can one of the key parameters, but not the only one.