A hedge against market downturns

Such funds are ideal for those eyeing steady incomes via equities

- SAIKAT NEOGI

RETAIL INVESTORS WHO want to invest in equity without taking too much risk and are looking for regular income from their investments should consider investing in dividend yield funds. These thematic mutual funds invest up to 65% of the portfolio in high dividend-paying stocks irrespective of the market conditions. In fact, high dividend yield companies limit downside risk, are better placed to weather economic downturns and bring stability to the portfolio.

Dividend yield shows how much a company pays out in dividends each year relative to its stock price. Most dividend-yielding stocks belong to sectors such as public sector companies, utilities, and information technology, which tend to be under-represented in most other diversified mutual fund portfolios.

These schemes invest predominantly in stocks of dividend-yielding firms with a preference for those that have a consistent track record of paying dividends at the time of investment. These schemes are mostly market cap and sector agnostic. By allocating a portion of one's investment to dividend yield funds, investors stand to additionally benefit from decent diversification.