HDFC Mutual Funds is planning to launch Dividend Yield Fund that would open for subscription on 27th November, 2020. HDFC Dividend Yield Fund invests predominantly in dividend yielding stocks and aims to provide capital appreciation and regular income. Dividend Yield Funds have provided 5% to 12% annualized returns in the last 5 years. Should you invest in the HDFC Dividend Yield Fund NFO? What are the risk factors an investor should consider before investing in such funds?
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What are Dividend Yield Funds?
As the name indicates, dividend yield funds invest in dividend yielding stocks. Their main motto is to provide capital appreciation by providing regular income.
HDFC Dividend Yield Fund NFO – Issue Details
This is an open-ended mutual fund. Here are the NFO issue details.
Download HDFC Dividend Yield Fund NFO SID
HDFC Dividend Yield Fund NFO – Investment Objectives
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.
However, there can be no assurance that the investment objective of the scheme will be achieved.
What is the allocation pattern in this mutual fund scheme?
Can NRI invest in this MF scheme?
Yes, they can invest in this scheme. They can invest on repatriation or non repatriation basis. However, Resident of Canada, US persons and OCBs cannot invest in this scheme.
Why should you invest in HDFC Dividend Yield Fund NFO?
Here are a few reasons to invest in such schemes.
1) These funds provide better yield on investments as they invest majorly in blue chip funds that provide higher dividend yield.
2) The level of risk in such funds is relatively low as they invest majorly in large-cap stocks that has proven track record of paying dividends.
3) Dividend Yield Funds have provided 5% to 12% annualized returns in the last 5 years. This indicates consistent performance in this category.
Major risk factors you should consider before investing in such funds
One should consider some of these risk factors / negative factors before investing.
1) Dividend funds invests in dividend yielding stocks. While they might provide good dividends, the price appreciation of such stocks could be at a lower rate compared to other stocks.
2) It invests in debt instruments to the tune of 35% where there is interest rate risk, liquidity risk and default risks.
3) It invests in InvITS and REITs, which are high risk
4) It invests in NCDs which are considered high risk these days.
5) Investors should read the NFO prospectus for complete risk factors.
Performance of existing Diviend Yield Mutual Funds
Let us look at the performance of existing dividend yield funds.
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Should you invest in the HDFC Dividend Yield Fund NFO?
HDFC Dividend Yield Fund invests in dividend yielding stocks. Such funds picks up stocks majorly from the blue chip category which are considered relatively better investment options. This category of funds have provided 5% to 12% annualized returns in the last 5 years. However, there is no guarantee that such dividends would be paid by so called blue chip corporates. If you are moderate risk to high risk investor, you can invest in such funds. If you do not want to test with new funds, you can invest in some of the top performing dividend yield funds indicated above.
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