What are dividend yield funds? How are they different from equity funds with a dividend option? Is their portfolio different significantly from equity or balanced funds?
There is a major confusion about dividend yield fund and the dividend option of mutual funds. Every equity fund provides a dividend and a growth option, which means that investors who want to accumulate choose the growth option, and investors who will be pleased with a periodic income from their investment choose the dividend option. On the other hand, dividend yield funds are funds that invest in high yielding stock for greater stability. These funds have gained prominence in the past 4-5 years because the underlying portfolio is relatively more resilient in a choppy market. So, don’t look at dividend yield funds as something which is dividend paying. All equity funds provide the dividend option, and the dividend coming from mutual funds might be coming from realised capital gains, not necessarily from stock dividends.