Often people say that investing in equity dividend yield mutual funds is a good idea. But are they actually good?
Will these funds suit you?
Are these funds suitable for everyone?
Before investing in dividend mutual funds, you need to be sure that these funds would suit your objective.
In this blog, we seek to discuss the dividend plan while also highlighting the best dividend yield plans to invest in.
What are dividend yield funds?
Dividend yield mutual funds are funds that primarily invest in companies that pay regular dividends.
For our novice readers, dividends are the profit that is distributed by the company to its shareholders.
|Fund Name||1Y||3Y||5Y||Expense Ratio||Turnover Ratio||Category||Risk|
|Principal Dividend Yield Fund - Direct - Growth||2.21%||19.58%||16.33%||2.11%||56%||Equity
|UTI Dividend Yield Fund - Direct - Growth||3.19%||15.61%||13.63%||1.53%||12%||Equity
|Templeton India Equity Income Fund - Direct - Growth||-0.46%||15.35%||14.67%||1.83%||3%||Equity
|ICICI Prudential Dividend Yield Equity Fund - Direct - Growth||-7.7%||15.22%||NA||1.79%||47%||Equity
|Aditya Birla Sun Life Dividend Yield Plus Fund - Direct - Growth||-8.8%||10.08%||12.14%||1.72%||26%||Equity
In this article
- Best Dividend Funds 2019 – Details
- What Is the Use of Dividend Funds
- Is it Suitable for You?
- Why Should You Invest in Dividend Yield Funds?
Best Dividend Funds 2019 – Details
The scheme strives to provide capital appreciation by investing predominantly in a well-diversified portfolio of companies that have a relatively high dividend yield.
Why Invest in Principal Dividend Yield Fund?
- The fund has generated superior returns over a multi-trailing period, thereby making it one of the most sought-after funds in the category.
- However, the fund suffers from low asset under management (AUM) which is below Rs 500 crore.
- Thus the expense of fund management becomes high. Also, the fund has a marginally higher risk when compared to the category average.
The scheme seeks to generate long-term capital appreciation and income by investing predominantly in dividend yielding equity and equity-related securities.
Why Invest in UTI Dividend Yield Fund-Direct?
- The fund has generated superior returns over the last one-year period.
- The fund comes with a low-risk profile as compared to category average but has higher expense ratio despite sizeable assets under management.
- The fund’s beta is 0.96 which indicates a balanced nature concerning aggressive and conservative stocks.
The fund seeks to offer a combination of regular income and long-term capital appreciation by investing in stocks that have an attractive dividend yield or potentially attractive dividend yield.
The investment strategy adopted is value investing.
Why Invest in Templeton India Equity Income Fund?
- The fund has generated superior returns over a multi-trailing period.
- However, the fund suffers from a high expense ratio, despite average assets under management is between Rs. 500 crore and Rs. 1000 crore.
- Also, the fund has a marginally lower risk when compared to the category average.
The scheme seeks to provide medium to long-term capital appreciation and dividend distribution by investing in a well-diversified portfolio of predominantly equity and equity related instruments, which offer attractive dividend yield.
Why Invest in ICICI Prudential Dividend Yield Equity Fund?
- The fund has generated superior returns over the multi-trailing period.
- The fund has a marginally lower risk when compared to the category average. However, the fund suffers from high expense ratio due to low assets under management that is below Rs 500 crore.
- The beta for the fund is 1.01 thereby reflecting a well-balanced characteristic of the portfolio thus indicating that the returns are a result of stock selection and not the market movement.
The scheme aims to generate returns by investing in high dividend paying companies. It would seek to build a portfolio that provides high dividend yield, substantial capital protection and a strong possibility of capital gains.
Why Invest in Aditya Birla Sun Life Dividend Yield Fund?
- The fund has generated superior returns over the long-term but has been facing turbulence over the past three years when compared to its category average.
- The fund has a high risk when compared to the benchmark and also suffers from high expense ratio due to average assets under management that is between Rs 500 crore and Rs 1000 crore.
- The beta for the fund is 1.02 thereby reflecting a well-balanced characteristic of the portfolio thus indicating that the returns are a result of stock selection and not a market movement.
What Is the Use of Dividend Funds
A dividend is a source of income and can be used to buy more units of the mutual fund. Investors who prefer buying dividend funds are typically the ones who look out for a source of income.
In simple words, investors looking for steady and reliable payments from their mutual fund investment invest in dividend yield funds.
Is it Suitable for You?
Due to the income generating nature of dividend yield funds, these funds are best suited for retired investors.
Also, these funds are typically less aggressive when compared to pure-play equity fund that adopts a growth strategy. Thus, these funds are also suitable for individuals who are risk-averse.
Additionally, investors prefer dividend yield funds against bond funds. This strategy is typically seen in an environment where interest rates are low but economic conditions are generally good.
This situation results in lower yields for bond fun than dividend yield fund.
Why Should You Invest in Dividend Yield Funds?
Fund manager of a dividend yield fund typically invests between 65% and 80% of the fund corpus in stocks that have a higher dividend yield (dividend per unit divided by market price).
The fund manager seeks to invest in companies with stable cash flows and is in a position to pay dividend regularly and at a steady rate.
These companies do not reduce dividend payout even during a downturn. Such investments tend to provide stability to the fund, thereby making it less volatile compared with their growth-oriented, diversified peers.
During a downturn, when the dividend yield of such funds tends to fall, the value aspect of these funds comes into play. This scenario makes these names appear attractive from a dividend yield angle.
The views expressed in this post are that of the author and not those of Groww