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An Introduction To Dividend Yield Funds

By Expert Author: Artham Vidya

Companies that have a stable business and a good track record in performance are also known for paying out dividends regularly. The stocks of such companies that consistently declare high dividends are known as high dividend yield stocks. Compared to growth companies, which need to use their surplus profits to reinvest in their business to fuel growth, established companies, which are past the growth stage and are in consolidation phase can afford to reward their shareholders by paying out excess profits in the form of dividends.

Mutual fund schemes that invest in the stocks of such high dividend paying companies are called dividend yield schemes as they play on the dividends declared every year by such companies.

Why should you look at Dividend Yield Mutual Funds?

When you invest in a mutual fund scheme, you are normally looking either for appreciation in your portfolio or a regular income. Therefore, when you invest in a mutual fund scheme that has high dividend yield stocks in its portfolio you are providing an insurance against market volatilities and fluctuations.

A quick analysis of such dividend yield mutual funds have shown that they provide moderate but consistent returns even when the markets are very uncertain. In fact over a period of five years or so such schemes outperform large caps, mid-caps and multi-cap funds since tend to depreciate less when the market is in correction mode. They can be used as a defensive element especially the market sees steep spikes and sharp falls.

What makes these schemes so attractive is their ability to generate balanced returns irrespective of any market condition.

Bottomline: Dividend Yield funds deliver moderate but stable returns over longer periods.

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