I wish there was a different label for this mutual fund type. When one sees ‘dividend yield’ as part of the fund’s nomenclature, it’s understandably assumed that regular dividends are given to investors. This, however, isn’t accurate whatsoever. A dividend yield (or any other) fund isn’t bound to issue payments to its investors.
The name ‘dividend yield fund’ reflects the strategy it follows. This involves investing in firms that consistently offer significant payouts.
Dividend yield = Dividend paid during the year/ stock price
If Infosys is trading at Rs.780/- per share and it pays a dividend of Rs.22/- for the year, the company’s dividend yield would be calculated as such.
= 22/780
= 2.8%
Here’s SEBI’s definition for the category-
Most of the fund is placed in stocks that give out dividends. This has two main benefits –
The fund invests 65% of the corpus in stocks that provide dividends; the remaining 35% can be used to invest in non-dividend paying stocks.
Ideally, these funds should invest in stocks offering high dividends. However, a lack of clear definition regarding what ‘high dividend’ entails can lead to discrepancies when it comes to stock selection. For instance, one fund manager may view any yield over 0.75% as ‘high’, while another could use the dividend yield of indices as their benchmark.
For example, check out the UTI Dividend yield fund –
The fund has a portfolio of firms that have been established and are consistently paying dividends, benchmarked against the Nifty Dividend opportunity 50 indices.
In the last decade, here’s how the dividend yield funds have generated returns-
It’s evident that these funds are performing at a standard level.
I’m not so keen on dividend yield funds. I’d rather take the chance with growth stocks, but ultimately it’s up to the investor and their portfolio goals.
© 2021 BP Equities Pvt. Ltd.
All Rights Reserved
By signing up, you agree to receive transactional messages on WhatsApp. You may also receive a call from a BP Wealth representative to help you with the account opening process
Disclosures and Disclaimer: Investment in securities markets are subject to market risks; please read all the related documents carefully before investing. The securities quoted are exemplary and are not recommendatory. Past performance is not indicative of future results. Details provided in the above newsletter are for educational purposes and should not be construed as investment advice by BP Equities Pvt. Ltd. Investors should consult their investment advisor before making any investment decision. BP Equities Pvt Ltd – SEBI Regn No: INZ000176539 (BSE/NSE), IN-DP-CDSL-183-2002 (CDSL), INH000000974 (Research Analyst), CIN: U45200MH1994PTC081564. Please ensure you carefully read the Risk Disclosure Document as prescribed by SEBI | ICF
Attention Investors
Issued in the interest of Investors
Communications: When You use the Website or send emails or other data, information or communication to us, You agree and understand that You are communicating with Us through electronic records and You consent to receive communications via electronic records from Us periodically and as and when required. We may communicate with you by email or by such other mode of communication, electronic or otherwise.
Investor Alert:
BP Equities Pvt Ltd – SEBI Regn No: INZ000176539 (BSE/NSE), INZ000030431 (MCX/NCDEX), IN-DP-CDSL-183-2002 (CDSL),
INH000000974 (Research Analyst) CIN: U45200MH1994PTC081564
BP Comtrade Pvt Ltd – SEBI Regn No: INZ000030431 CIN: U45200MH1994PTC081564
For complaints, send email on investor@bpwealth.com
