Dividend yield funds seen as stable option for sound risk-adjusted returns

These funds may underperform growth funds and lag during bull runs

With equity markets turning volatile, investors are seeking funds that can cushion their portfolios. Many are looking at dividend yield funds, which have underperformed the broad-based BSE 500 index over the past year but outpaced it over longer horizons. 

Investment approach 

Dividend yield funds are a type of diversified equity fund. “The Securities and Exchange Board of India (Sebi) guidelines require them to invest a significant portion of their portfolio in dividend-yielding stocks. Limited exposure to non-dividend-paying stocks is also allowed,” says Mittul Kalawadia, senior fund manager, ICICI Prudential Asset Management Company (AMC). 

“We invest in a portfolio of companies