The objective of the scheme is to generate long term capital appreciation and income by investing mainly in dividend-yielding and equity-related securities. Nevertheless, there can be no certainty or guarantee that the investment target of the scheme will be achieved.
The UTI Dividend yield fund manager invests in stocks with a dividend yield (dividend per unit divided by market value) of 65 to 80 percent of its corpus, which is higher than the market average dividend yield. Thus the dividend yield serves as the first filter in-stock selection for those funds. There are several benefits of using dividend yield as the initial filter.
The fund manager prefers to invest in companies that have a reliable cash flow and are consistent and capable of steady rate pay dividends. Such a firm usually does not raise its dividend high even during a recession. These investments make the funds stable and less volatile than their diversified, growth-oriented peers. It is a fund that invests primarily in companies with high dividend yields, which is essentially a financial measure that indicates how much dividend a company pays each year compared to its share price.
Dividend yield returns tend to be lower during a decline than growth funds. “The interest element of these funds is applicable at such times. From the point of view of the dividend yield, they appear attractive. People feel that at least the dividend portion of the return is guaranteed.
A drawback of UTI Dividend yield fund
The major drawback of dividend yield funds is that they underestimate growth funds in growing markets. Aggressive investors can avoid these funds with higher returns and lower risk appetite.
These points to remember
- Investors should keep some points in mind while investing in Dividend Yield Fund. One, conservative investors should opt for large-cap-oriented funds. It would defeat the purpose of investing in low-risk, conservative funds that reduce portfolio risk if you invest in mid- and small-cap stocks with higher allocation. Ensure that the market cap group holding the fund is reviewed on the website of a rating agency.
- Find the period for which the fund exists. According to the expert, “The fund launched last year may look better than others as it has seen only one up-cycle, but it is always smarter to go with a fund that has some bulls and Bear markets have taken over.”
- Avoid minimal corpus sized funds. According to the expert, “In such funds, if the manager’s investment strategy works, the fund looks like a star performer, but if it makes even one or two mistakes, its performance is severely stifled. Funds with low expense ratios preferred, and those measured by standard deviations or betas, exhibit low volatility in the past.
- Finally, remember that they are conservative, low-risk funds. Compare their output with other dividend yield funds, not growth-oriented, diversified funds.
Conclusion: In addition, if you are a conservative investor and looking for a less volatile equity funds and should opt for a dividend yield fund offering good, long-term risk-adjusted returns, then invest in UTI Dividend Yield Fund.