As per SEBI’s guideline, the fund house providing the Dividend Yield Fund has to invest at least 65% of its assets under management (AUM) of the fund in equity and equity-related instruments of high dividend-yielding companies. The fund manager of these funds generally invests more than 65% into dividend-yielding stocks to provide better returns to the investors. The remaining corpus is invested in other assets to increase the returns and mitigate the risk.
For beginners in capital market, dividend funds offer a relatively less stress free alternative to feel the tide and as one picks up the game can move to more riskier alternatives. This does n't mean that you deprive of reasonable return for your investment
The features of this Dividend Yield fund
includes:
- Stable regular income: As the dividend is the
primary criteria for choosing the stocks in this fund, you can expect a
regular return on your investment. However, the mutual fund house needs to
book the profit from its holdings to distribute the dividends amongst the
investors.
- Lower volatility: Dividends are provided
regularly by highly stable companies, which are reputed in the market and
have a brand value. These are generally big companies having large market
capitalization. Thus, the risk factor is lower as these companies’ stocks
do not get much affected by short-term market volatility.
Performance Review
Series-1=1 year
Series-2=3Year
Series-3=5Year
The above graph is based on data from moneycontrol and shows that in the long term, the return is comparable to other categories.
There are only 10 dividend yield mutual fund schemes with total assets under management (AUM) of ₹31,049 crore, as on January 31, 2025, reveals AMFI data.
To put this in perspective, there are 205 schemes in the sectoral
fund category with an AUM of ₹4.60 lakh crore, 23
schemes in the value fund category (AUM of ₹1.83 lakh crore), and
43 ELSS (AUM of ₹2.32 lakh crore).
During periods of low returns like that happened in 2008, the Dividend Yield funds stand out due to their capacity to withstand market volatility relatively better manner than others.
Happy Reading,
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