A dividend is a portion of the company’s profit that is distributed to its shareholders. Dividend Yield Mutual Funds are open-ended funds schemes that invest in the shares/stocks of companies that provide consistent high dividends. However, a company may only pay dividends if it generates substantial profits; hence, the majority of these companies have a solid track record of profitability.
A Dividend Yield Fund must invest at least 65 percent of its total assets in dividend-paying equities, as per SEBI regulations. Consequently, this serves as a filter for fund managers when choosing equities. They choose companies that can afford to pay substantial dividends and have a track record of doing so. Before investing, the fund manager also considers growth possibilities and other elements. Even if the yield is modest, investors seeking a monthly income should consider investing in these funds.
List Of Best Dividend Yield Mutual Funds In India (as per 5-Year Return)
|Scheme||5-Year Return||AUM (INR) (Cr)|
|Templeton India Equity Income Fund||12.93%||1,249|
|UTI Dividend Yield Fund||11.63%||2,777.42|
|Sundaram Dividend Yield Fund||11.59%||323.25|
|ICICI Prudential Dividend Yield Equity Fund||10.76%||1,112.87|
|Aditya Birla Sun Life Dividend Yield Fund||8.39%||817.76|
|HDFC Dividend Yield Fund||25%||2991|
Features of Dividend Yield Mutual Funds
- Dividend yield funds are known to invest a significant portion of their capital in dividend-yielding stocks, indicating that the companies holding these stocks pay above-average dividends on a regular basis.
- Due to SEBI regulations, these schemes must invest at least 65 percent of their assets in dividend-paying equities.
- Mutual funds with a high dividend yield are known to invest in firms that distribute a substantial portion of their income to investors. Typically, these are government-owned and a few private-sector enterprises that consistently distribute a substantial dividend to stakeholders in order to maximize shareholder value.
- These companies have the option of reinvesting their annual profits or distributing them to their shareholders.
- These dividends can only be paid from a mutual fund’s holdings-related gains.
As a result of the changes implemented in the Union Budget 2020, the dividends from these dividend-paying mutual fund distributions are now taxed according to the investor’s income tax bracket. The capital gains tax rate for these funds varies based on the holding term and the type of equity exposure. If the equity fund’s exposure exceeds 65%, the standards governing the taxation of equity funds apply. Otherwise, the debt fund tax implication will apply. Before investing, you must analyze your stock exposure in order to better plan your taxes. 10% TDS is imposed on dividend income received from a mutual fund that exceeds Rs 5,000
Who Are These Funds Suited For?
These funds are suitable for individuals wishing to invest in equity without taking on excessive risk because the underlying securities in them include stocks of financially stable companies with strong cash flows. These are the ideal tools for generating a relatively stable and consistent income. Regardless, it must be remembered that returns are not guaranteed and might change substantially between bullish and bearish markets.
- Since these funds invest in the shares of companies with a strong track record, they have the potential to provide better long-term returns.
- The ability of these funds to issue regular dividends is enhanced by the track record of the underlying companies, making them an ideal choice for investors seeking dividend income and stability.
- These funds are significantly less affected by market volatility than other equity schemes, making them a safer investment for people seeking higher returns than fixed-income products such as fixed deposits.
- These funds are suitable for novice investors with a low-risk tolerance.
Are dividend mutual funds risky?
Dividend yields Mutual funds invest in stocks, therefore they can be volatile in the short term. However, the risk diminishes significantly over the long term i.e 5-10 Years.
Where do dividend-yield mutual funds invest?
These are mutual funds that invest at least 65 percent of their portfolio in dividend-paying equities.
How to invest in dividend yield mutual funds?
Download one of the best trading app through the google play store, register, complete your KYC and you are ready to invest in mutual funds.
What is the NAV of the mutual funds’ scheme?
NAV is the market value of the scheme’s holdings. Since the market value of securities fluctuates daily, the NAV of the same plan fluctuates daily. The NAV per unit is the market value of a scheme’s securities divided by the total number of units at any given date. For example, if the market value of a mutual fund scheme’s assets is INR 200 lakh and the fund has issued 10 lakh units at INR 10 each to investors, the NAV per unit of the fund is INR 20 (i.e., 200 lakh/10 lakh). Each day, mutual funds are obligated to declare their NAV.