Dividend yield schemes are often considered as 'defensive bets' among equity funds as they invest in high quality, cash rich and dividend paying stocks. But in the last few years, dividend yield schemes have lost some of their sheen due to overdependence on sectors such as energy, oil & gas, metals and banks.
Currently, all the 6 schemes present in the category have shown underperformance in the past one year and 3 years respectively. Of these, only Tata Dividend Yield Plan A and BNP Paribas Dividend Yield funds have been able to post positive returns in the last one year.
Fund managers say that one of the main reasons for underperformance of dividend yield schemes has been due to investment into cyclical sectors which have remained stressful over the past few years on account of policy paralysis by the central government. Secondly, high exposure to PSU banks is also considered as spoiler for many of the dividend yield schemes.
Bank PSUs have struggled to deal with the non performing assets (NPAs) which have stretched their balance sheets compared with their private peers who have successfully brought down the NPAs. To revive the inferior performance of the scheme, fund managers have started tweaking their portfolio by investing in sectors such as FMCG and IT.
Despite poor showing, fund managers are confident that once there is revival in capex cycle, fortunes of dividend yield schemes too will change.
* Investment into cyclical sectors, policy paralysis and exposure to PSU banks are some of the reasons
* These funds have now started moving towards FMCG and IT to tide over the crisis
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