Dividend yield funds shine in volatile mkts

Uncertainty in the equity markets in recent times has pulled down NAV of most equity schemes. However, in the last one month, dividend yield equity funds have managed to give positive returns as compared to plain vanilla equity diversified schemes.

Dividend yield schemes gave a one-month return of 1-2%, while it was a negative 3.1% on an average for equity diversified funds. Benchmark equity indices — BSE Sensex and NSE Nifty — fell even more by over 5%. Dividend yield schemes predominantly invest in portfolio of companies with high dividend yield, as measured by annual dividend paid divided by its latest share price.

Consistently high dividend paying companies provide a steady stream of cash flows for its investors. In that sense, owning an equity share is akin to holding a bond with dividends flowing akin to coupon payments. Any appreciation in stock price is an added advantage for shareholders.

Ankit Sancheti, fund manager of the Birla Sun Life Dividend Yield Plus (BSLDYP) said, "In the bull run of 2007-08 it underperformed, while during the volatile markets they have done better." In the last one month, BSLDYP gave a return of 2.1%, while it was 1.8% for ING Dividend Yield and 1.2% for Escorts High Yield Equity.

Andhra Bank, Glaxo consumer health care and ONGC are top holdings of Birla, while Tata and Fortis are bullish on financial and FMCG stocks. Dividend yield funds usually have a mandate to invest in companies which have a dividend yield at least equal to that of Nifty or Sensex. Sensex dividend yield is currently 1.17%. Buying into dividend yielding companies is a conservative form of building stock portfolio- and as such these funds are usually known to outperform other equity funds in a bear market.

In India, though the entire corpus of dividend yield funds is less than 1% of the total equity corpus of Rs 2 lakh crore. “The dividend yields schemes in the long run can't beat the returns of the equity schemes though it does relatively well in volatile markets" said a leading equity fund manager. In the last one and three years, handful of dividend yield funds have given higher returns than that of plain vanilla equity schemes.

Source: http://www.financialexpress.com/news/Dividend-yield-funds-shine-in-volatile-mkts/621524/