HDFC launches dividend yield fund: Key things to know2 min read . Updated: 26 Nov 2020, 09:50 AM IST
The NFO of HDFC Dividend Yield Fund will open for subscription on November 27, and will close on December 11.
HDFC Mutual Fund has launched HDFC Dividend Yield Fund, an open ended equity scheme predominantly investing in dividend yielding stocks. The scheme aims to provide capital appreciation and/or dividend distribution by predominantly investing in a well-diversified portfolio of equity and equity related instruments of dividend yielding companies. Dividend yield is a financial ratio that shows how much a company pays out in dividends/buyback each year relative to its stock price.
Dividend yielding stocks are companies which are rich in cash generation from its operations and have stable operations; it results in fair amount of stability and are relatively lower risky than other type of funds in medium to long run.
The New Fund Offer (NFO) of HDFC Dividend Yield Fund will open for subscription on November 27, and will close on December 11.
The scheme will be managed by Gopal Agrawal. HDFC Dividend Yield Fund will be benchmarked against NIFTY Dividend Opportunities 50 TRI.
The scheme will offer growth and dividend plans under both regular and direct options.
Where will HDFC Dividend Yield Fund invest?
The fund will invest minimum 65% of its assets in dividend yielding companies at the time of investment or companies that chooses to do a buyback in addition of payment of dividend or in lieu of dividend. The scheme will prefer to build portfolio with stocks having:
(a) consistent track record of paying dividends at the time of investment
(b) Paying higher dividend yield than NIFTY 50 Index and be sector and market cap agnostic
Who may invest in HDFC Dividend Yield Fund
The scheme is suitable for investors looking for a diversified portfolio of dividend yielding stocks with an objective to provide capital appreciation over long term,those who are aiming for investment in equities with fair amount of stability and relatively lower risk (than other equity funds) over medium to long term. It is suitable to investors who aim to take advantage of tax arbitrage via mutual fund route compared to direct investing in dividend yielding stocks.
According to HDFC Mutual Fund an investor should have a minimum investment horizon of 3 years or more to invest in HDFC Dividend Yield Fund.
Why the launch of dividend yield fund now?
> Low interest rates are favorable for Dividend Yielding Stocks. Lower interest rate generally makes high dividend paying companies attractive. Further, with RBI cutting policy rates over the past few months and maintaining its accommodative stance in the Oct’20 policy meeting, such stocks have become attractive going by the recent history. See graph1.
Currently, 1 year G-sec rate is 3.47% and average dividend yield of NIFTY Dividend Opportunities 50 Index is 3.86%. See graph 2
> Historically, NIFTY Dividend Opportunities 50 Index has traded at discount to NIFTY 50 Index. However, the valuations tend to converge, as seen in 2016-17
Currently, high dividend yielding stocks are trading at attractive valuations compared to NIFTY 50; thus providing a decent investment opportunity.
How are dividend taxed?
Dividend received in the hands of investors directly from companies are taxed at their marginal income tax rate while the dividend received by MF scheme is tax free.