Among the flood of new fund offers is a scheme focused on dividend yield from the ICICI Prudential stable. It will invest most of its portfolio in stocks that pay out good dividends, thereby aiming to benefit from both price appreciation and payouts.

To ensure that such stocks are also reasonably priced, the dividend yield criteria is used, which is the ratio of dividend per share to its price. The higher the ratio, the more bang you’re getting for your buck.

ICICI Pru Dividend Yield joins the ranks of seven other dividend yield funds. Since such funds bank on steady payouts by companies, they are more stable than other diversified funds, especially in capricious market conditions such as now.

The fund suits long-term investors who cannot stomach too much volatility.

Fund basics

ICICI Pru Dividend Yield will invest at least 80 per cent of its portfolio in stocks trading at dividend yields higher than the Nifty index, which is currently at 1.4 per cent. In the CNX-500 basket, most stocks at higher yields are from sectors such as public sector banks, fertilisers and oil marketing companies. Select auto, software, mining and pharma stocks also make the cut. Most of these sectors have had a rollercoaster ride on the bourses in the past year, though they stand to benefit if economic growth gathers steam.

The fund will invest across market capitalisations depending on where yields are attractive. The number of stocks it will hold in the portfolio will, therefore, be pegged to the market cap — if the mid-cap space throws up more opportunities, the fund will increase the number of stocks to diffuse risk, and vice versa.

On the other hand, Tata Dividend Yield and UTI Dividend Yield, the two top-performing funds in the category, deliver well even while holding a majority of their portfolio in stable large-cap stocks.

Benchmark

Most dividend yield funds are benchmarked against the CNX 500. But ICICI Dividend Yield will measure its performance against the CNX Dividend Opportunities index, which has a dividend yield of 3.3 per cent now. The index sports 50 stocks, with financials accounting for 27 per cent, followed by consumer goods at 20 per cent and energy at 17.5 per cent.

The index has delivered an annual return of 20 per cent over the past five years, against the 15 per cent of the CNX 500.

In a shorter time-frame, though, the index has returned lower than both the Nifty and the CNX 500, showcasing the need to hold on to dividend-themed funds for a longer time-frame.

ICICI Dividend Yield will primarily be managed by Mrinal Singh and Vinay Sharma. The offer period for the open-ended fund closes on May 9.

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