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Aarati Krishnan

INVESTORS in Birla Dividend Yield Plus can retain their investments in it. A fund that invests in high dividend yield stocks should, in theory, weather the market downside better than funds that do not have such an orientation.

Over the past year, the markets, too, have taken note of high-dividend yielding stocks by pegging up their valuation levels.

However, the efficacy of a dividend-yield strategy in providing downside protection is yet to be tested in the Indian market over a long time frame, especially if liquidity remains the key factor in market swings. Therefore, those considering fresh investments in this fund may take exposures in small lots at this juncture.

While the fund fared better than most equity funds in the market meltdown until April 2004, it has suffered a sharp erosion in NAV over the past month, as banking and oil/gas stocks — its key sectoral exposures — bore the brunt of selling.

Suitability: Birla Dividend Yield Plus has a bias towards mid-cap stocks, given that undervalued stocks with high dividend yields are usually to be found among the mid-caps. Therefore, the fund may carry higher volatility than one that invests exclusively in large-cap stocks.

However, as the portfolio choices for this fund are pegged to dividend yield, the fund certainly carries a lower risk profile than other mid-cap focussed funds.

Performance: The fund generated much better returns than its benchmark CNX 500 in 2003, with a return of 125 per cent over the year, against a 103 per cent return on the index. The returns also compared quite well with that of other equity funds with a good long-term track record.

Since December 2003, the fund lost about 12.3 per cent in value, against the 17 per cent decline in the CNX 500 index. While Birla Dividend Yield Plus fared much better than other equity funds until April 2004, its NAV has lost about 14 per cent over the past month alone, as liquidity pulled out of oil/gas and banking stocks on the back of divestment and policy-related uncertainties. Banking and oil/gas PSUs were its top two sectoral exposures by end of April 2004.

However, even within this universe, high dividend-yielding stocks would stand a better chance of a bounce-back than those without this feature.

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