Tata Dividend Yield Fund: NFO review

Tata Mutual Fund has launched a new scheme: Tata Dividend Yield Fund. The NFO will be open for subscription till May 17. The fund will be managed by Sailesh Jain.Dividend yield funds invest in companies which pay higher dividends. Fund managers believe that these companies are trading at reasonable valuations which makes them good bets in the current market. But is this new fund a good option for retail investors? The dividend yield funds have offered 63.62% returns in the last one year, 8.71% in three years and 13.79 in five years. "Tata Dividend Yield Fund portfolio would largely consist of companies paying dividends higher than the market. This Fund would therefore provide a healthy mix of both stable growth companies and value segments of the market. Our analysis of the past data suggests that high dividend paying companies generally provide greater protection during market volatility and generate gains that are in line with the broader market when the market stabilizes. In addition to the stable & growing companies paying dividend, we may identify and include out-of-favor dividend paying,” said Sailesh Jain at the launch of the fund.A look at the portfolio of existing dividend yield funds suggest that even though they can invest across market capitalisation and sectors, these funds tend to have large cap bias. These funds generally invest in mature and less volatile businesses. These stocks become attractive when real interest rates decline and liquidity rises, which is the kind of scenario experts are expecting in the near future. However, mutual fund advisors believe that only this point does not make Tata's NFO a good bet for investors.Should you invest?"I would not recommend anyone to invest in any dividend yield funds and instead recommend investors to stick to flexicap and focused funds. Dividend yield funds typically invest in companies which gives regular / high dividends to their investors but the frequency and amount is not guaranteed. The fund manager will have limitations in stock selection obstructing the fund to generate optimum returns. There is a misconception that dividend yield funds are less volatile. The fund has no market capitalisation limitations thus it can venture into any segments within large, mid & small caps, even if the allocation is small to risky assets. Exposure to mid and small cap companies will make the fund volatile. These funds can be cyclical at times.," says Rushabh Desai, a mutual fund distributor based in Mumbai. . "As per historical data, lower interest rates generally make high dividend paying companies attractive, but these situations don't remain for long term. Historically many of the flexi cap and focused funds have delivered much better returns against dividend yields funds. However, if dividend yield funds are in your portfolio, choose a scheme with a track record and a fund manager that suits your investment style," says Rushabh Desai.About the fund:Minimum Investment: Rs 5,000Plans: Growth, IDCWExit Load (%): For units in excess of 12% of the investment,1% will be charged for redemption within 365 daysBenchmark: NIFTY Div Opps 50 TRIRiskometer: Very High

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