IDBI Dividend Yield Fund: Will It Yield You Decent Returns?
Dec 15, 2018

Author: Aditi Murkute

IDBI Dividend Yield Fund (IDYF), it the latest offering from IDBI Mutual Fund. It is an open-ended equity scheme that will aim to invest mainly in stocks of companies paying high dividends across market capitalization.

As many of you may already be aware, Dividend Yield is the ratio (expressed as a percentage) of total dividend declared per share for the financial year (or relevant period) divided by the current market price. In simple terms, it calculates the proportion of your invested money you will get back in the form of dividend.

Driven by value style of investing, dividend yield as a strategy gives high preference to stocks that are profitable and believe in distributing a significant portion of their profits to the shareholders, in the form of dividends.

More importantly in conditions when the markets are showing extreme volatility, dividend funds can act as a safe bet, as these funds focus on investing in well-established, cash rich and high dividend yielding stocks.

Table 1: NFO details of IDYF

Type Open-ended equity scheme. Category Dividend Yield Fund
Investment Objective To provide long-term capital appreciation and/or dividend distribution by investing predominantly in dividend yielding equity and equity related instruments. However, there can be no assurance that the investment objective under the scheme will be realized.
Min.Investment Rs 500 and in multiples of Re 1 thereafter Face Value Rs 10 per unit
Plans  • Direct
• Regular
Options • Growth
• Dividend (Reinvestment, Payout and Sweep)
Entry Load Not Applicable Exit Load
  • If units of the Scheme are redeemed or switched out up to 10% of the units (the limit) within 12 months from the date of allotment - Nil.
  • If units of the scheme are redeemed or switched out in excess of the limit within 12 months from the date of allotment - 1% of the applicable NAV.
  • If units of the scheme are redeemed or switched out after 12 months from the date of allotment - Nil.
Fund Manager Mr Ashish Mishra Benchmark Index Nifty Dividend Opportunities 50 - Total Return Index (TRI)
Issue Opens 3rd December 2018 Issue Closes: 17th December 2018
(Source: Scheme Information Document)

How will the scheme allocate its assets?

Under normal circumstances, the scheme’s asset allocation will be as under:

Table 2: IDYF’s Asset Allocation

Indicative Allocation
(% of Total Assets)
Risk Profile
Minimum Maximum
Equity and Equity related instruments of dividend yielding companies 65 100 High
Equity and Equity related instruments of other than dividend yielding companies 0 35 High
Debt and Money market instruments 0 35 Low to Medium
Units issued by Real Estate Investment Trusts (REITs) & Infrastructure Investment Trusts (InvITs) 0 10 Medium to High
(Source: Scheme Information Document)

What will be the Investment Strategy?

The Investment strategy of IDBI Dividend Yield Fund would be to invest predominantly in the stocks of dividend yielding companies as identified at the time of investment. The fund house will identify dividend yielding companies as those companies which should have paid a dividend at least once in preceding three financial years.

Although dividend yield is the major criteria for selecting the stocks while constructing the portfolio, there would also be few other parameters that would be considered by the fund management:

  • Cash flow generation,

  • Earning growth prospect,

  • Business fundamentals,

  • Expansion plans,

  • Competitive position including pricing power,

  • Strong balance sheet,

  • Management quality, etc.

It is perceived that high dividend yielding stocks have a limited downside, especially in a falling equity market compared to other stocks. A general belief is that high dividend paying companies are rich in cash generations from its business and such stocks have a potential of capital appreciation in a reviving market. Besides, the scheme may take a small exposure to non-dividend paying companies that have sound business fundamentals, quality management, growth prospect etc.

The scheme will also retain the flexibility to invest in the entire range of debt and money market instruments. Investment in Debt securities and Money Market Instruments will be as per the limits in the asset allocation table of the Scheme, subject to permissible limits laid under SEBI (MF) Regulations. The portfolio would be structured to incorporate reasonable liquidity using cash and cash equivalents?

Who will manage IDBI Dividend Yield Fund?

The scheme will be managed by Mr Ashish Mishra.

Mr Ashish Mishra is a fund manager-equity at IDBI Mutual Fund. He has done his MBA and B.E. and has 13 years of work experience. His earlier associations in investment management roles were with ING Investment Management India Pvt Ltd. and Union Bank of India (Treasury).

Some of the other Equity schemes which he manages include IDBI Diversified Equity Fund, IDBI Midcap Fund, IDBI Gold Exchange Traded Fund, IDBI Gold Fund and IDBI Focused 30 Equity Fund

The outlook for IDBI Dividend Yield Fund:

Theoretically, dividend yield funds are a subset of value style funds that are meant to be relatively safer compared to growth funds. Accordingly, IDBI Dividend yield fund is expected to carry moderate to high risk. While dividend yield funds can be expected to perform during volatile and bearish market conditions, they may easily trail their growth-oriented peers during market rallies. However, they still have the potential to reward over complete market cycles.

Hence, investors need to keep their return expectation realistic while investing in such funds. IDBI Dividend yield fund will not be an exception. Its performance will be driven by the picks of the fund manager and prevailing market sentiments. Hence, consider your risk appetite and time horizon before investing in such a fund.

To read PersonalFN’s view click here.

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Quantum Information Services Private Limited (QIS) was incorporated on December 19, 1989.

QIS was promoted by Mr. Ajit Dayal with an objective of providing value-based information / views on news related to equity markets, the economy in general, sector analysis, budget review and various personal products and investments options available to the Public. It was the first company to start equity research on an institutional level.

'PersonalFN' is a service brand of QIS and was started in the year 1999. In 1999, the Company registered the Domain name for providing information on mutual funds and personal financial planning, financial markets in general, etc. and services related to financial planning and research in various financial instruments including mutual funds, insurance and fixed income products to customers. It offers asset allocation and researched investment recommendations through its financial planning services.

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  3. Equitymaster Agora Research Private Limited;

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  13. I V Subramaniam.

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  1. ‘subject company’ is a company on which a buy/sell/hold view or target price is given/changed in this Research Report;

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