Dividend Yield Mutual Funds

What Are Dividend Yield Mutual Funds?

Dividend yield mutual funds invest in equities of companies that declare dividends to share a portion of their profit. A minimum of 65% of the corpus in a dividend yield fund needs to be in dividend-generating instruments.

Benefits of Investing in Dividend Yield Mutual Funds

Here are the benefits that you can reap by investing in dividend yield mutual funds:

• Dividend yield mutual funds are less affected by market fluctuations compared to other equity-focused schemes. They offer a great option for investors seeking equity exposure with potentially higher returns than fixed-income instruments like bank FDs.
• You have the potential to earn higher returns from investments in dividend yield mutual funds due to their investment in companies with strong financial performance.

Things to Remember While Investing in Dividend Yield Mutual Funds

You need to remember the following factors while investing in dividend yield mutual funds:

• If you prefer portfolio stability as a traditional investor, consider funds with a higher allocation to large-cap equities. These funds help minimize risk.
• You need to be aware of the investment tenure and ensure that it aligns with your financial goals.

An Overview of the Best Dividend Yield Mutual Funds

Here is a snapshot of some of the dividend yield funds:

1. SBI Dividend Yield Fund

SBI Dividend Yield Fund allocates 90.31% of its portfolio to Indian equities, with 54.12% in large-cap, 12.72% in mid-cap and 5.85% in small-cap stocks. Additionally, it holds a 0.06% allocation in government securities as part of its debt component.

• Asset Under Management: ₹8,420.44 crore approximately
• Launch Date: March 2023
• Expense Ratio: 0.88%
• Exit Load: 1%
• Investment Details: Equities (90.21%), Debt (0.06%), Others (9.63%)

2. HDFC Dividend Yield Fund

HDFC Dividend Yield Fund (Direct Growth) invests 98.58% in shares of domestic companies. Large-cap, mid-cap, and small-cap stocks account for 55.86%, 9.98%, and 11.35%, respectively. Before investing, you can compare the fund's performance with the benchmark Nifty 500 TRI.

• Asset Under Management: ₹5,511.7 crore approximately
• Launch Date: December 2020
• Expense Ratio: 0.83%
• Exit Load: 1%
• Investment Details: Equities (98.58%), Others (1.42%)

3. ICICI Prudential Dividend Yield Equity Fund

ICICI Prudential Dividend Yield Equity Fund (Direct Growth) invests 92.7% in domestic equities wherein large cap, midcap and smallcap stocks include 69.26%, 5.81% and 4.71% respectively. It further includes 0.44% in government securities out of 0.7% of its debt component.

• Asset Under Management: ₹4,574.55 crore approximately
• Launch Date: May 2014
• Expense Ratio: 0.68%
• Exit Load: 1%
• Investment Details: Equity (92.7%), Debt (0.7%), Others (6.6%)

4. UTI Dividend Yield Fund

UTI Dividend Yield Fund (Direct Growth) invests 96.89% in shares of Indian companies in which 57.7%, 13.01% and 8.93% are in large cap, mid cap and small cap stocks. The debt portion of the fund includes 0.56% government securities.

• Asset Under Management: ₹3,633.45 crore approximately
• Launch Date: January 2013
• Expense Ratio: 1.37%
• Exit Load: 1%
• Investment Details: Equity (96.89%), Debt (0.56%), Others (2.55%)

5. Templeton India Equity Income Fund

Templeton India Equity Income Fund (Direct Growth) allocates 69.77% to Indian equities, including 47.57% in large-cap, 10.77% in mid-cap, and 3.02% in small-cap stocks. The fund is managed by Rajasa Kakulavarapu, Sandeep Manam and Ajay Argal.

• Asset Under Management: ₹2,201.11 crore approximately
• Launch Date: January 2013
• Expense Ratio: 1.27%
• Exit Load: 1%
• Investment Details: Equity (82.06%), Others (17.93%)

Key Takeaway

Dividend yield mutual funds help you earn a portion of the profits of the underlying companies when they declare to distribute them. However, dividends are not fixed returns and vary based on the decisions of the companies you invest in through mutual funds. Make sure to check the terms and conditions of the portfolio before you invest, to earn potential returns.

Frequently Asked Questions

1. Can I reinvest the dividend declared by a company?

You can reinvest your dividend yield into the fund for further growth. However, it depends on the fund type and the fund manager's discretion, whether a fund allows a dividend reinvestment option.

2. Where do dividend yield mutual funds invest?

Dividend yield mutual funds focus on companies with a strong history of paying dividends, allocating 70-80% of their assets to stocks that offer higher dividend yields than the benchmark.

3. What are the risks associated with dividend yield mutual funds?

In the case of equity dividend funds, the returns are linked to the market condition and performance of the fund. The dividend payouts depend on the company's policies and are not guaranteed.

4. What is dividend yield?

Dividend yield is the amount that a company pays to their stockholders for each stock holding. You can calculate dividend yield by dividing annual dividends per share by stock price per share.

5. How do dividend yield mutual funds work?

Dividend yield funds operate to provide investors with regular monthly dividends. Fund managers achieve this by investing primarily in companies with a strong potential for consistent payouts.

Click here to read the article disclaimer.