The Hindu Business Line : Birla Dividend Yield Plan: Hold

Unitholders can retain their holdings in Birla Dividend Yield Plus as its focus on dividend-paying value stocks can help contain downside risk in a volatile market. As value funds follow a defensive investment strategy, their performance tends to lag behind typical diversified funds in a bull market. This pattern has also prevailed over the past year, with most value funds trailing the market.

Even compared against MSCI's India Value Index, which has delivered close to 50 per cent over the past year and is a more appropriate benchmark for measuring value funds, Birla Dividend Yield and its peers trail. Several balanced funds, which invest about 60 per cent of their assets in equity, have delivered similar or better returns. A defensive fund should, therefore, not be a core part of your holdings.

If you are, however, heavily invested in equity, you may consider allocating a small portion of your money to Birla Dividend Yield Plus to provide some protection to your capital. Dividend yield measures dividend paid as a percentage of current market price. A high dividend yield usually means that the stock concerned is trading below its intrinsic value. These stocks tend to be less volatile, making a portfolio of such companies well suited for the conservative investor.

We prefer Birla Dividend Yield Plus within this category of funds as it has a longer track record. It also has a more focussed strategy of picking stocks with a dividend yield at least twice that of the Sensex. As on December 31, stocks in its portfolio had a dividend yield of 2.9 per cent against 1.45 per cent of the Sensex. It also sticks resolutely to this mandate, unlike other funds, which have the flexibility to invest 35 per cent of their assets in other stocks.

Performance: The fund delivered a return of about 40 per cent over the past year. Its performance in the first two years after its launch in February 2003 was more impressive and the slowdown has only happened over the past year.

Value stocks have not been able to score over growth stocks the past year. The fund has tried to minimise its holdings in oil stocks, which enjoy a high dividend yield but have been gross underperformers over the year. It has 14 per cent of its assets invested in FMCG stocks such as HLL and Colgate, which have not been the strongest performers in the sector. Its other top sectors include pharmaceuticals and banks, both of which have lagged behind in this period.

Fund facts: The fund has an asset base of about Rs 700 crore. Dividend and growth options are on offer. The minimum investment amount is Rs 5,000.

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