Dividend Yield fund: A dividend yield fund invests in stocks that offer attractive dividend yields. Dividend yield is defined as dividend per share divided by the share’s market price. For example if a stock quoting at Rs. 1000 pays out a dividend of Rs 30, the dividend yield works out to be 3 per cent. Most of these funds invest in stocks of companies having a dividend yield higher than the dividend yield of a particular index, i.e., Sensex or Nifty. The prices of dividend yielding stocks are generally less volatile than growth stocks. Besides, they also offer the potential to appreciate. Among diversified equity funds, dividend yield funds are considered to be a medium-risk proposition. However, it is important to note that dividend yield funds have not always proved resilient in short term corrective phases. There are two options for earning Income from Mutual Fund Schemes which are enumerated as under:
Growth/Appreciation or Cumulative Option: Under this option, the investor doesn’t get any intermittent income. The investor gets income only at the time of withdrawal of investment. Till the time of withdrawal, the return gets accumulated & is paid back to the investor at the time of withdrawal in the form of capital gain.
Dividend Option: At a regular frequency may be monthly/quarterly/half yearly or Annual, the Scheme declares dividend to the unit holders of the Scheme. Dividend option is further divided in two sub-options as under:
• Dividend Payout Option: Dividends are paid out to the unit holders under this option. However, the NAV of the units falls to the extent of the dividend paid out and applicable statutory levies
. • Dividend Re-investment Option: The dividend that accrues on units under option is reinvested back into the scheme at ex-dividend NAV. Hence, investors receive additional units on their investments in lieu of dividends.
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