HDFC Mutual Fund introduced HDFC Dividend Yield Fund, an open-ended equity investment scheme that invests in dividend-yielding stocks. The scheme aims to invest in a portfolio of equity and equity-related instruments to provide capital appreciation and/or dividend distribution in dividend-yielding companies.
The NFO for the fund is open for subscription and ends on December 11. The fund manager of the scheme is Gopal Agrawal. HDFC Dividend Yield Fund would be benchmarked against NIFTY Dividend Opportunities 50 TRI. Dividend-yielding stocks are rich in cash generation from the company’s operations and also have stable operations. It promotes a fair amount of stability and is less risky when compared to other types of funds in the medium to long run. The scheme of the fund will provide both regular and direct options for growth and dividend plans.
The portfolio of the funds will invest a minimum of 65% of its assets in dividend-yielding companies at the time of investment or would choose to do buyback in addition to dividend payment or substitute of dividend. The portfolio of the scheme will consist of stocks having a consistent track record of paying dividends at the time of investment and pays a higher dividend yield than the NIFTY 50 Index.
This fund is suitable for investors who are searching for a diversified portfolio of dividend-yielding stocks to provide capital appreciation over the long term. Investors who are looking for investment in equities with a fair amount of stability and are relatively less risky than other types of equity funds. It is also suitable for investors who are aiming to takeover benefits of tax arbitrage via mutual fund path compared to direct investment in dividend-yielding stocks. The investor should have a minimum of 3 years of investment horizon or more than to invest in HDFC Dividend Yield Fund.
Dividend Yield Fund is being launched now because lower interest rates make high dividend-paying companies attractive. RBI was cutting policy rate from the last few months and maintained its accommodative stance in the October 20 policy meeting. The recent history is showing that these stocks are becoming very attractive. The one-year Government security rate is 3.47% and the average dividend yield of the NIFTY Dividend Opportunities 50 Index is 3.86%. In the past few years, NIFTY Dividend Opportunities 50 Index had traded at discount to the NIFTY 50 Index. However, the valuations tend to converge, as seen in 2016-17. Currently, compared to NIFTY 50 high dividend-yielding stocks are traded at attractive valuations.
When investors receive the dividend from companies it is taxed at marginal income tax rate, while dividend from mutual fund scheme is tax-free.