ING Dividend Yield Fund: Invest

With market volatilities here to stay for some more time, investors can consider adding dividend yield funds to their portfolios.

These funds are known to contain declines better than pure diversified funds during market corrections. ING Dividend Yield Fund, given its track record of consistent performance and well-diversified portfolio, makes a good investment candidate here.

While peer funds such as Birla Sun Life Dividend Yield Plus and UTI Dividend Yield are also promising, ING Dividend has fared better during both market corrections and upsides.

The fund has also consistently beaten its benchmark BSE 200 over one-, three- and five-year time-frames. Investors can accumulate units in this fund through a systematic investment plan (SIP).

Suitability

While dividend yield funds typically do well during periods of volatility and market correction, their performance during secular bull runs doesn't compare favourably against diversified funds.

In the case of ING Dividend too, the performance (as against diversified peers) has been better during corrective phases. Investors may, therefore, limit exposure to this fund and use it as a diversifier.

Performance : ING Dividend Yield has delivered minus 16 per cent, 35 per cent and 14 per cent over a one, three and five-year periods, respectively.

This is largely in line with peer funds. But what makes ING Dividend more attractive is its relatively better show during periods of market ups and downs. For instance, during periods of market falls, such as the ones in 2008 and now, the fund managed to limit its losses better than its benchmark (and most peers).

But at the same time, it has managed to fare reasonably well during market rallies too — from March 2009 lows to the end of the year — the fund put up about 140 per cent returns on the table, beating not just its benchmark but peers as well.

ING Dividend Yield Fund typically includes stocks that yield dividend above the dividend yield of the Nifty and enjoy good liquidity. While this shrinks the fund's universe of stocks considerably, having a small asset base has given it the required manoeuvrability.

Portfolio : The fund is well diversified with around 39 stocks. Its top five holdings account for 25 per cent of its portfolio, while the top three sectors make up about 35 per cent. In terms of investment strategy, though the fund had in the past maintained a consistent mix between large and mid-cap stocks, it has now upped its weight on the former.

Large-cap exposure in its October 2011 portfolio stands at about 74 per cent now as against 62 per cent six months ago. The higher large-cap exposure may help cap the downside to the fund's NAV in the event of a market decline.

Financials, auto and energy make up its top three sectors. The fund currently holds about 11 per cent of its assets as cash and equivalents.

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