Dividend yield funds are mutual funds that invest primarily in firms that have the potential to pay out dividends regularly. According to the Securities and Exchange Board of India (SEBI), a dividend yield fund must invest at least 65 percent of its portfolio in dividend-paying securities, according to the Securities and Exchange Board of India (SEBI). The dividend yield fund's fund manager seeks to invest in firms with consistent cash flows and the ability to pay dividends regularly and consistently. During a slump, such businesses rarely lower their dividends.
A dividend yield strategy is a method for identifying stocks with high dividend yields. As previously stated, the fund manager of these funds prefers to invest in companies with predictable cash flows. These funds often have a track record of delivering large dividends and have strong fundamentals. These companies have a track record of making solid deliveries throughout the business and economic cycles, with little volatility, especially during bear markets. Investors considering dividend yield funds should check the fund's dividend pay-out history to see if it has paid dividends continuously. Here are 3 dividend yield mutual funds that have given good returns in the recent past.
Templeton India Equity Income Fund
An open-end diversified equity fund that invests primarily in stocks with a current or potentially attractive dividend yield in order to deliver a combination of regular income and long-term capital appreciation.
Franklin Templeton Mutual Fund's India Equity Income Fund-Growth is a Thematic-Dividend Yield mutual fund plan. The Templeton India Equity Income Fund-Growth manages assets of 1,148 crores (AUM). The fund has a 2.3 percent cost ratio, which is more than most other Thematic-Dividend Yield funds.
Templeton India Equity Income Fund has a 1-year growth rate of 60.57 percent. It has returned an average of 14.05 percent per year since its inception.
The Energy, Technology, Construction, FMCG, and Automobile sectors account for the majority of the fund's assets. Infosys Ltd., Power Grid Corpn. Of India Ltd., Embassy Office Parks REIT, Brookfield India Real Estate Trust REIT, and Tata Power Co. Ltd. are the fund's top five holdings.
UTI Dividend Yield Fund
UTI Dividend Yield Fund Regular Plan-Growth is a UTI Mutual Fund Thematic-Dividend Yield mutual fund plan. The assets under management (AUM) of UTI Dividend Yield Fund Regular Plan-Growth is 3,028 crores. The fund has a 2.21 percent cost ratio, which is more than most other Thematic-Dividend Yield funds.UTI Dividend Yield Fund Regular Plan-Growth gains are 50.59 percent over the last year. It has generated an average yearly return of 15.29% since its inception.
The majority of the money in the fund is invested in the Technology, FMCG, Energy, Financial, and Metals sectors. In comparison to other funds in the category, it has less exposure to the Technology and FMCG industries.
The fund is invested in Indian stocks to the tune of 99.45%, with 63.72 percent in large cap stocks, 22.56 percent in mid cap stocks, and 11.89 percent in small cap stocks.
Principal Dividend Yield Fund
The Principal Dividend Yield Fund - Direct Plan will be subject to an Exit Load. For units worth more than 24% of the investment, a 1% redemption fee will be paid if redeemed within 365 days.
A minimum investment of Rs 5000 is required, with an extra investment of Rs 1000. SIP investments start at Rs 500.
Principal Dividend Yield Fund Direct-Growth is a Principal Mutual Fund Thematic-Dividend Yield mutual fund plan. Principal Dividend Yield Fund Direct-Growth had 224 Crores in assets under management (AUM) and is a modest fund in its category. The fund has a 2.1 percent cost ratio, which is more than most other Thematic-Dividend Yield funds.
The returns on the Principal Dividend Yield Fund Direct-Growth Fund over the last year have been 50.27 percent. It has had an average yearly return of 14.53 percent since its inception.
Who Should Invest in Dividend Yield Funds?
These funds are compared to the Nifty Dividend Opportunities 50 Index, which monitors high-yielding firms. These funds have a large-cap bias, despite the fact that they can invest across market capitalization and industries. The majority of these funds have put at least half of their net assets into large-cap companies. Dividend Yield Funds invest in established, healthy cash flow businesses that are less volatile and capital-intensive, such as utilities and mining.
Investors seeking for a consistent stream of income could choose a dividend yield fund. Although the dividends paid by this type of mutual fund aren't particularly high, some income is better than none. However, as previously stated, dividend payments are not guaranteed and are totally dependent on the performance of the underlying company as well as market movements.
Mutual funds are exempt from paying taxes on dividends received from investee firms. Dividends paid by mutual funds are now taxed in the hands of investors according to their income tax bracket. The capital gains tax rate offered by these funds varies depending on the holding term and kind of equity exposure.
The dividend will be taxable exclusively in the hands of investors beginning April 1, 2020.
On dividend income distributed to residents, mutual funds deduct 10% and 20% Tax Deduction at Source (TDS), respectively. If the dividend income exceeds Rs 5,000, this is applicable. As a result, growth plans are recommended for investors.
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