Dividend Yield Mutual Funds: A Simple Guide
When companies make a profit, they sometimes share part of it with their shareholders through dividends. Some companies give high dividends, while others may not give any. This isn’t mandatory—it’s just a way to make investing in their stocks more appealing. Here, we’ll look at what Dividend Yield Mutual Funds are and why they might be a good option for investors seeking regular income.
What are Dividend Yield Mutual Funds?
A Dividend Yield Mutual Fund is a type of equity fund that invests in companies known to pay high dividends. Dividend yield means the dividend paid per share divided by the market price. These funds usually invest in companies that consistently make profits and have a history of paying high dividends. The idea is to invest in companies that not only pay dividends but offer a high dividend yield.
Generally, these funds allocate about 70-80% of their investments to companies with dividend yields higher than the market average. Besides high dividends, fund managers also consider factors like the company’s growth potential and stability.
Key Features of Dividend Yield Mutual Funds:
- Steady Income: Since dividend-paying stocks are the main focus, these funds aim to offer consistent returns. However, the fund company has to make profits on its investments to pay dividends to you.
- Lower Risks: Companies that pay regular dividends are often well-established, financially strong, and less affected by market ups and downs. This can reduce the risk for investors.
How Do Dividend Yield Mutual Funds Work?
Dividend yield mutual funds invest mainly in companies that pay higher dividends. They select firms with strong records of increasing their dividends over time or maintaining high dividend yields.
However, the fund’s Net Asset Value (NAV) might not grow quickly, as profits are distributed as dividends. This makes dividend yield funds a good option for low-risk investors or those looking for regular income rather than rapid growth.
Why Invest in Dividend Yield Mutual Funds?
Here are a few benefits:
- Regular Income: These funds can provide you with steady income through regular dividend payouts.
- Stability: The underlying stocks are usually less affected by market volatility, so you’re less likely to see drastic drops in value.
- Long-Term Growth Potential: While they focus on dividends, these funds can also deliver decent returns in the long term, making them appealing for beginners.
FAQ's:
Yes, especially for low-risk or first-time investors, as they offer stability and regular income.
According to SEBI, at least 65% of their portfolio must be in dividend-yielding stocks.
These funds suit those looking for reliable returns from established companies and regular dividend income.
Yes, they provide passive income as dividends, making them ideal for those seeking a steady income from investments.
You can start with as little as Rs. 500 per month through a Systematic Investment Plan (SIP).
Note:
This article is for educational purposes only and does not recommend any specific product. Always consider your financial goals before investing.
