Best Performing Dividend Yield Funds

Generally, people are attracted to the investment instruments which provide dividends to their investors. Today many people invest in dividend-yielding stocks. And looking at this tendency, mutual funds came up with the dividend-yielding scheme, which is an open-ended equity-oriented scheme predominantly investing in dividend-yielding stocks. 

Should an investor invest in dividend yield funds? 

As this scheme is equity-oriented it is suitable for aggressive investors. It can be beneficial to invest in dividend yield funds as they invest in companies that declare dividends, which means companies that make a profit. Hence dividend yield funds include not only dividend-paying stocks in their portfolio but also stable and profitable companies. 

The fund manager tends to invest in companies that have stable cash flows and are in a position to pay dividends regularly and at a steady rate. These funds are less volatile and do not affect much during the downturn of the market. From mid-October, the Indian equity market is falling, so it is the right time to invest in these funds as they can offer stability in a falling market. However, they might underperform other equity-oriented funds during the rising market. Investors looking for higher returns during the rising market should avoid investing in dividend yield funds. 

The tax implications on dividends have been changed. Before, there was no tax on dividend income as companies declaring dividends paid Dividend Distribution Tax (DDT). Effectively this income was tax-free in hands of investors till March 31, 2020. However, all dividends received by investors were liable for tax on and after April 1, 2020. In the Finance Act 2020, DDT was withdrawn and the standard rate of TDS at the rate of 10 per cent on dividend income paid in excess of Rs 5,000 from the company or mutual fund was imposed on dividends in the hand of investors. So, after this change in taxation one can invest in this mutual fund scheme growth option instead of directly investing in a high dividend-yielding stock. 

This way you can stay invested in profit-making companies and receive dividends that will get reinvested and grow your investment worth. It will be taxed like any other mutual fund scheme based on your capital gain. You can receive this benefit only if you invest in this scheme through the growth option. 

Presently, there are eight dividend yield mutual fund schemes but out of those Tata Dividend Yield and HDFC Dividend Yield don’t have NAV history as they have been launched recently. 

Following table depicts the best performing Dividend Yield Mutual Fund Scheme based on a one-year return along with its AUM and Expense Ratio: