The Hindu Business Line : UTI Mutual plans to launch dividend yield scheme

UTI Mutual Fund has lined up a scheme to focus on high dividend yielding stocks. Dividend yield will be considered `high' if it is greater than the dividend yield of the Nifty last released by the National Stock Exchange.

The scheme, with the BSE-100 as its benchmark index, will under ordinary circumstances invest at least 65 per cent of its net assets in such stocks. This allocation may be scaled up to even higher limits if the circumstances are right. The stocks that are to be selected may, at times, be relatively less liquid as compared to growth stocks, the draft offer document filed with SEBI has mentioned while listing the scheme-specific risk factors.

It has also pointed out that high dividend yielding stocks are perceived to have a limited downside, especially when the market is falling or is in a bearish mode.

"It is a general belief that high dividend paying companies are rich in cash generations. At the same time high dividend yield might indicate under-pricing for the stock in spite of its cash generation. This might help to unlock potential growth for the stock prices. Hence, high dividend yield stocks provide good possibilities of capital appreciation in a reviving market, resulting in good capital gains", the offer document has stated.

Investors in the proposed UTI Dividend Yield Fund (to be managed by Mr Vinay Kulkarni) will be able to make use of four types of triggers. These are based on value, capital appreciation (indicated by a percentage), date of repurchase and stop-loss.

The fund, once launched, will be the fourth of its kind. The other products are funds managed by Birla MF, Principal MF and Tata MF. Birla Dividend Yield Plus is the oldest scheme in the group, tracing its origin to February, 2003.

Dividend yield theme sinks in

INVESTORS may do well to consider `dividend yield' as "an idea that works", said Mr Rajat Jain, Chief Investment Officer, Principal Mutual Fund. "Dividend yield stocks can act like an anchor in a portfolio. Investors should see them as a good way of spreading their risk", he observed.

Principal MF's fund, based on the same theme, has been around since September last year and has provided about 11 per cent returns since launch.

The stocks that have found their way into Principal Dividend Yield Fund's portfolio include Ashok Leyland, Bongaigaon Refinery, Tata Chemical, Allahabad Bank and ONGC, all of which are said to be high dividend yielding counters.

Distribution sources maintain that investors will stand to gain if dividend yield funds deliver payouts on a regular basis. They refer particularly to Birla MF's scheme, which in late December gave its ninth dividend, bringing up the tally to 100 per cent. The fund manager here has picked up stocks such as Hero Honda, Kochi Refinery, Vijaya Bank and HPCL.

Tata Dividend Yield, which has invested in HPCL, BHEL and Tata Steel, has proposed to pay a dividend later this fortnight. - Nilanjan Dey

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