10 Best Dividend Yield Mutual Funds to Invest in India
Dividend paying or dividend yield mutual funds invest in the equity shares of business organisations that announce dividends regularly. Companies only pay dividends to shareholders if they are making profits. If you wish to invest in dividend paying mutual funds, check out our list of top 10 dividend paying mutual funds in India.
Know your investment goals and diversify your portfolio by investing in these funds.
10 Best Dividend Paying Mutual Funds in India
| S No. | Mutual Fund Scheme Name | Features | 3-Year Annualised Returns | 5-Year Annualised Returns |
| 1. | ICICI Prudential Dividend Yield Equity Fund – Direct Plan – Growth | NAV: Rs.30.71Expense Ratio: 0.81%AUM: Rs.1109.27 Cr | 24.12% | 10.85% |
| 2. | UTI Dividend Yield Fund – Direct Plan – Growth | NAV: Rs.108.31Expense Ratio: 1.49%AUM: Rs.2789.48 Cr | 16.83% | 11.36% |
| 3. | IDBI Dividend Yield Fund – Direct Plan – Growth | NAV: Rs.18.31Expense Ratio: 1.5%AUM: Rs.91.03 Cr | 19.52% | NA |
| 4. | Templeton India Equity Income Fund – Direct – Growth | NAV: Rs.89.42Expense Ratio: 1.59%AUM: Rs.1254.98 Cr | 23.87% | 13.53% |
| 5. | Sundaram Dividend Yield Fund – Direct Plan – Growth | NAV: Rs.91.29Expense Ratio: 2% AUM: Rs.321.27 Cr | 18.63% | 11.71% |
| 6. | Aditya Birla Sun Life Dividend Yield Fund – Direct Plan – Growth | NAV: Rs.280.57Expense Ratio: 1.85%AUM: Rs.810.28 Cr | 19.60% | 8.60% |
| 7. | HDFC Dividend Yield Fund – Direct Plan – Growth | NAV: Rs.15.51Expense Ratio: 0.43%AUM: Rs.2991.34 Cr | NA | NA |
| 8. | Tata Dividend Yield Fund – Direct Plan – Growth | NAV: Rs.11.54Expense Ratio: 0.74%AUM: Rs.540.41 Cr | NA | NA |
| 9. | SBI Bluechip Fund – Regular Plan – Growth | NAV: Rs.62.53Expense Ratio: 1.65%AUM: Rs.33021.61 Cr | 10.99% | 14.79% |
| 10. | L & T Emerging Businesses Fund | NAV: Rs.47.21Expense Ratio: 1.85%AUM: Rs.8406.20 Cr | 28.35% | 12.54% |
*NAV & Returns data as of 27 October 2022
**This table is for educational purposes only. Navi doesn’t endorse any of these mutual fund schemes.
Now that you know of the best dividend paying mutual funds, here’s a quick trivia. You could make the best out of your investments if the fund you’re interested in has a low expense ratio! Navi Mutual Fund offers a wide range of low cost index funds that could suit your investment goals. Download the Navi app, explore our mutual funds and invest!
Disclaimer: Mutual fund investments are subject to market risks, read all scheme related documents carefully.
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Features of Dividend Paying/Yield Funds
Here are two significant characteristics of dividend yield mutual funds:
1. Asset Allocation
As per SEBI guidelines, this fund needs to invest a minimum of 65% of the assets in equity and equity-based instruments.
2. Risk-reward Ratio
These funds usually deal with stocks. Their performance is affected by market fluctuations. That being said, since these schemes invest in stocks of the best companies, they are less volatile than most other equity mutual funds.
3. Regular Source of Income
Dividend paying mutual funds offer a stable source of income through equity investments. YOu can use the money earned to invest in more mutual fund units.
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Benefits of Dividend Yield Mutual Funds
Here are the main benefits of investing in dividend yield mutual funds:
- Has the potential to provide regular dividend payouts.
- Good for first-time equity investors.
- Considerably reduces market volatility.
- Has the potential to pay higher dividends in the long run.
- Market fluctuations do not affect the underlying companies to a great extent.
Taxation of Dividend Paying Mutual Funds
Until 31st March 2020, dividend income from mutual funds was tax-free. However, after 1st April 2020, according to the Finance Act (2020), dividend income is taxable upon withdrawal.
A TDS of 10% is also imposed on dividend distributions of more than Rs. 5000. As a measure of COVID-19 relief, until 31st March 2021, the TDS rate of mutual fund dividend income was reduced to 7.5%.
The dividend income is also taxable depending on the holding period:
1. Long-Term Capital Gains (LTCG)
When the holding period of fund units is more than 12 months, a tax of 10% is applicable on the gains upon redemption. However, only the gains above Rs. 1,00,000 per annum are eligible for taxation. There is no tax for gains up to Rs 1,00,000.
2. Short-Term Capital Gains (STCG)
If the holding period of scheme units is up to 12 months, the tax rate on gains is 15%.
Who Can Invest in Dividend Yield Mutual Funds
- First-time equity investors can invest in dividend yield mutual funds.
- Investors looking for regular dividend income.
- Good for risk-averse investors.
- Investors who have retired and are looking for a stable, regular source of income.
Suitability of Dividend Paying Mutual Fund Schemes
Since these funds invest in companies with favourable cash flows, the dividends are available regularly. Individuals can take advantage of these dividend payments by allocating their savings to these schemes.
Dividend paying funds are ideal for investors looking to get exposure to the equity market without facing too much risk. The dividends earned may not be sufficient, but no earning can be ignored.
While investing in dividend paying mutual funds, take into account the following aspects:
- Risk appetite
- Investment objective
- Fund manager’s experience
- Expense ratio
- Exit load
- Regular or direct plan
Final Word
Dividend Yield Funds are open-ended equity funds primarily investing in dividend paying stocks. The fund managers invest in the stocks of companies having the potential to provide regular payouts.
However, a fund house cannot guarantee dividends and the performance of this type of scheme is impacted by market volatility.
FAQs
Ans: Dividends from mutual funds are not taxed separately. Instead, they are added to your annual income and taxed as per your applicable income tax slab rates.
Ans: The frequency of dividend payout in dividend yield funds is determined by the management, which can be monthly, quarterly or biannually. A special dividend is a one-time payment paid outside of the scheduled dividend payouts.
Ans: Tax-saving mutual funds have a mandatory lock-in period of 3 years.
Ans: Fund managers design dividend yielding schemes keeping in mind SEBI norms. They make alterations in a portfolio after thorough market analysis and extensive research. A fund’s performance is based on the effectiveness of a manager’s decisions. A well-informed manager is more likely to achieve the scheme’s predetermined objective.
Ans: Exit load denotes a fee that an investor has to pay if he redeems his units prematurely. This charge varies from one scheme to another. Make sure to read the scheme-related documents carefully before you invest in a fund.
Ans: A fund house levies an annual maintenance fee on the investors to cover the costs related to administration and operations. This fee is called an expense ratio. This charge affects a fund’s NAV, which influences the returns.
Ans: When a fund house offers a scheme to an investor without the involvement of any distributor or broker, it is a direct plan. On the other hand, regular plans engage third parties for investing in mutual funds.
Individuals can allocate their resources to these funds via two modes− systematic investment plan (SIP) and lump-sum investment plan. Under the SIP mode, an individual can invest at regular intervals such as yearly, quarterly or monthly. A lump-sum route involves investing the entire sum in one go.
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Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
