Investors who focus on steady growth and regular income often look to dividend yield mutual funds. In the last year, these funds have given impressive returns, with LIC MF’s Dividend Yield Fund offering over 60% profit. Several other funds have also provided excellent returns, ranging between 43% and 53%.
But what’s behind their success, and are these funds a good fit for your portfolio? Let’s explore their performance and features in detail.
LIC MF Dividend Yield Fund: The Star Performer
LIC Mutual Fund’s Dividend Yield Fund has topped the list with a return of 60.43% on its direct plan and 58.76% on its regular plan over the past year. This performance places it as the best-performing dividend yield fund in its category. Investors have benefited from its ability to invest in strong, dividend-paying companies.
Not only LIC MF but other mutual funds in this category have also delivered solid profits. Let’s look at the other funds that have performed exceptionally well over the last year.
Top 7 Dividend Yield Funds of the Year
The benchmark index for most dividend yield funds, including the ones listed below, is the NIFTY 500 Total Return Index. This index recorded a return of 39.98% over the past year. The funds listed here have all outperformed the benchmark:
- LIC MF Dividend Yield Fund
- Direct Plan: 60.43%
- Regular Plan: 58.76%
- AUM: ₹419.32 crore
- ICICI Prudential Dividend Yield Equity Fund
- Direct Plan: 53.32%
- Regular Plan: 51.31%
- AUM: ₹5,000.03 crore
- UTI Dividend Yield Fund
- Direct Plan: 51.41%
- Regular Plan: 50.52%
- AUM: ₹4,460.98 crore
- Aditya Birla Sun Life Dividend Yield Fund
- Direct Plan: 49.73%
- Regular Plan: 48.54%
- AUM: ₹1,607.01 crore
- Templeton India Equity Income Fund
- Direct Plan: 46.94%
- Regular Plan: 45.77%
- AUM: ₹2,481.95 crore
- Sundaram Dividend Yield Fund
- Direct Plan: 43.94%
- Regular Plan: 42.05%
- AUM: ₹965.30 crore
- HDFC Dividend Yield Fund
- Direct Plan: 43.85%
- Regular Plan: 41.99%
- AUM: ₹6,327.08 crore
These funds’ performance has been a result of careful investments in companies with solid financials and consistent dividend payments.
What Are Dividend Yield Funds?
Dividend yield funds are mutual funds that invest primarily in companies known for paying regular dividends. These companies tend to have a stable business model and are often leaders in their sectors. The dividends provide investors with regular income, in addition to any capital gains from the appreciation in stock prices.
Key Features of Dividend Yield Funds
- Focus on Strong Companies: Dividend yield funds focus on companies that regularly pay dividends. This provides a steady income stream for investors, making it a preferred option for retirees or those seeking regular income.
- Lower Risk Compared to Other Equity Funds: Since these funds invest in financially strong companies, they carry lower risk compared to other equity mutual funds. Even during times of market volatility, these companies tend to remain stable, protecting the investments.
- Long-Term Growth Potential: While dividend yield funds may not always offer high capital appreciation like other aggressive equity funds, they can provide stable returns over the long term. The added benefit of reinvesting the dividends allows for compounding, which boosts long-term growth.
- Diversification: These funds typically invest in a variety of sectors and companies, giving investors the advantage of diversification. This minimizes potential losses during market downturns.
Why Have These Funds Done So Well Recently?
Dividend yield funds have performed exceptionally well over the past year for several reasons:
- Strong Market Conditions: Despite global challenges, the Indian equity market has done well, with companies recovering from the pandemic-related slowdown. Many dividend-paying companies have seen their profits grow, boosting the returns for dividend yield funds.
- Focus on High-Quality Companies: These funds invest in companies with strong financial health, making them more resilient during market fluctuations. The careful selection of such companies has played a significant role in their success.
- Steady Dividends: In uncertain economic times, companies that can still pay regular dividends become even more attractive. The steady income from dividends combined with the market’s growth has led to high returns for investors.
Who Should Consider Investing in Dividend Yield Funds?
Dividend yield funds are suitable for investors looking for relatively lower risk with regular returns. Here’s who can benefit:
- Retirees and Income-Seekers: Those who are no longer in the workforce and want a steady income stream from their investments will find dividend yield funds appealing.
- Low-Risk Investors: Compared to other equity funds, dividend yield funds offer lower risk, making them a safer choice for conservative investors.
- Long-Term Investors: While dividend yield funds may not provide rapid growth, they offer stability and can grow significantly over the long term. The reinvestment of dividends can lead to compounding, which enhances wealth creation over time.
Final Thoughts
While the strong performance of dividend yield funds, including LIC MF’s impressive 60% return, is appealing, it’s essential to remember that past performance is not a guarantee of future results. Investors should consider their financial goals, risk tolerance, and time horizon before investing in these funds. Consulting with a financial advisor is recommended to tailor investments to individual needs.
(Disclaimer: The purpose of this article is only to provide information about the scheme, not to recommend investment. Take any investment decision only after consulting your investment advisor.)
