Dividend yield funds beat large-cap peers

This might not seem the best of times to put money in dividend yield funds. The market has been on a sustained uptick and growth stocks are in the spotlight. 

These funds, however, with category average returns of 25 per cent, have beaten the Sensex’s 16 per cent gain and the 19.9 per cent average category return for large-caps. 

Dividend yield funds invest 65-80 per cent of their corpus in companies whose dividend yield is higher than the average yield in the market. They are more suitable for those who want to cushion themselves in falling markets and expect reasonable capital appreciation in rising markets. 

“Although they could lag other diversified funds in a rising market, these funds do well over the long term and help diversify. Depending on  the risk profile, one can allocate up to 10-15 per cent to these,” said Kaustubh Belapurkar of Morningstar Investment Adviser India.

“Our philosophy has been to focus not only on high-dividend paying stocks but also look at the earnings potential. Some turnaround stories also helped us clock healthy returns,” Karthikraj Lakshmanan, senior fund manager at BNP Paribas Mutual Fund.