To sail through a troubled market, use Dividend Yield Funds

What is Dividend yield? It stands for the result you get by dividing the rupee dividend by the purchase price of the equity share.



Dividend Yield Fund is a mutual fund created with dividend paying equity shares holding maximum percentage share in its portfolio. It is a diversified equity fund with only restriction that the portfolio is skewed towards dividend paying companies.



These kind of equity shares are also called value shares in the capital market, as they result in substantial value unlocking only in the event of a discovery, sale of assets, merger/acquistion etc..

During the last one year as on 12.06.2008, the BSE Sensex returned 7.9% and for three years 30.7% respectively; The Dividend Yield Funds gave 10.22% to 18.58% with exception of Escorts Hi Yield Fund and Birla Dividend Yield Plus.

During the period under study, the diversified equity funds exhibited a standard deviation of 26.4 to 35, the dividend yield funds showed a range of 25-26 . That is why, generally it is said that dividend yield funds are best suitable for risk averse equity invesors.

When the BSE Sensex was subject to high fluctuations during 2003-2005, the dividend yield funds led by Birla Dividend Yield plus gave very good returns. But when the market enetered the phase of secular rise after 2005 till January 2008, they whithered in rate return per annum. However, they regained their status now again from Jan 2008. Thus Dividend Yield as a strategy is giving good returns only in troubled situations. So if any one is planning their funds in 50:50 for all seasons, then a suggestion could be to split between the P/E funds and Di Yi Funds. When one half is failing, the other half will support. But who can tell us when the market will turn good and when the market will turn bad? Only the market knows at best..

ABN AMRO dividend yield fund got merged with their opportunities fund w e f 10 Feb 2008 probably because of the secularly growing market from 2006 through Jan 2008.

Birla Dividend Yield Plus (Feb 2003)

Tata Dividend Yield fund(Oct 2004)

UTI Dividend Yield Fund(May 2005)

ING Dividend Yield fund(Oct 2005)

Principal Dividend Yield Fund(Sept 2004)

ABN AMRO Dividend Yield Fund(Aug 2005)

Escorts High Yield Fund(Dec 2006)

Templeton India Equity Income Fund(Apr 2006)

After 2006, No funds entered this area till date.