The Hindu Business Line : Dividend yield funds fail to keep up growth tempo

DIVIDEND yield funds, the favourites of asset management companies during the last quarter, had impressive collections during the initial public offers, but have not shown substantial growth since, say mutual fund distributors.

Dividend yield funds were first launched by Birla Sun Life Asset Management Company, but in the last quarter, AMCs such as Tata Mutual Fund and Principal PNB launched their own versions of the fund.

Birla Dividend Yield Fund currently has assets under management of Rs 647 crore, while Tata Mutual fund manages Rs 389 crore in the fund. Principal PNB AMC closed its IPO of its dividend yield (DY) fund at Rs 350 crore and Tata had reported collections of over Rs 414 crore on the fund, which has now slipped to Rs 389 crore.

Distributors say that AMCs were tracking the growth of Birla's DY fund and wanted to replicate it. However, by the time the fund got launched by other AMCs there was too much clutter about various kinds of diversified equity funds and it was difficult to convince investors.

"Investors now are wary about fancy mutual funds. When Birla launched, they got themselves a first mover advantage. It is difficult to replicate that in the current market conditions," said a retail distributor.

Overall, DY funds have posted returns that are lower than the sector average for diversified equity schemes. Birla DY fund has posted returns of 23.95 per cent for the last 12 months, as against a sector average of 25.97 per cent. Principal DY fund returned 6.51 per cent for the last six months, vis-à-vis the sector average of 14.46 per cent.

For the last month that it has been operational, Tata DY Fund posted 6.51 per cent, while the average of all diversified funds was close to 8 per cent.

Financial advisors say that there is a fundamental disconnect in investors' minds regarding this category of products. "The investment idea behind equity products is capital appreciation and not really dividend yields. In the last 10 years, dividend yields of the Sensex has ranged between 0.68 per cent to 2.15 per cent, hardly a good return for equity," said Mr Gaurav Mashruwala of ACE, a Mumbai-based financial planning company.

Also, investors are aware that growing companies rarely give out high dividends as they keep the money for expansions and other uses. For companies that have reached a saturated level of growth, the upside on performance and hence rise in stock prices is not very high, he added.

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