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​Should you invest in dividend yield funds?​

When people hear the term dividend yield funds, most will assume that these are funds that pay out dividends to investors regularly. It might surprise you to know that the name is a bit of a misnomer. Here, dividend yield refers to the fund’s strategy rather than its capacity to pay out dividends. So, what are dividend yield funds, and should you invest in them? Read on to find out.

What are dividend yield funds?

First, let us understand what dividend yield is. Simply put, it is the per-unit dividend divided by the market price. A dividend yield fund is a type of mutual fund scheme that invests a majority of its corpus in stocks having a dividend yield higher than the market benchmark. So, these funds invest in companies that have a history of declaring dividends.

The advantage of the dividend yield filter

The advantage of these funds having a dividend yield filter at the outset is that the fund’s corpus primarily gets invested into profitable companies. These companies are able to pay out dividends regularly, thus indicating that they are cash-rich and can balance out dividend payouts along with income reinvestment. So, these companies are likely to be stable as compared to others.

Should you invest in dividend yield funds?

You can look at investing in these funds if-

• You have a low-risk appetite:
These funds are ideal for low-risk investors who do not want to expose themselves too much to market risk.

• You can stay invested for years:
Dividend yield funds shine in the long term as most fund managers invest in blue-chip stocks that have a history of performing excellently. It may pay off to stay invested in these funds as you may getbetter returns in the future.

• Your goal is to accrue Dividend Income in the fund.
If your objective is to accrue Dividend income in the fund over a period of time then, you may want to consider the dividend yield funds

• Your goal is to set regular withdrawals from the fund
As an investor if you are looking for setting up regular withdrawals from the fund in the form of Systematic Withdrawal plan(SWP) you may want to consider these funds.

Summing up

Dividend yield funds should find a place in your investment portfolio if you are looking for lesser volatility. These funds are a good option for conservative investors with a long-term investment horizon.


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Disclaimer:
This is an investor education and awareness initiative by Nippon India Mutual Fund.
Helpful information for investors: All Mutual Fund investors have to go through a one-time KYC (know your Customer) process. Investors should deal only with registered mutual funds, to be verified on SEBI website under 'Intermediaries/ Market Infrastructure Institutions'. For redressal of your complaints, you may please visit www.scores.gov.in . For more info on KYC, change in various details & redressal of complaints, visit mf.nipponindiaim.com/investoreducation/what-to-know-when-investing This is an investor education and awareness initiative by Nippon India Mutual Fund.

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