I am a senior citizen. I have ₹1 lakh to invest. My intention is to earn higher income than that offered by banks’ fixed deposits. I am told that UTI Dividend Yield Fund pays regular dividends, more than bank FDs. Kindly suggest if I can invest here.

  Jayanta Kumar Sinha

Dividend payouts from mutual funds are dictated by market conditions and the surplus available with the funds. Fund houses are under no obligation to keep paying regular dividends on any fund or even consistently pay the same percentage of dividend.

Though UTI Dividend Yield has paid dividends in each of the last 10 years, the number of times dividend has been declared and the amount paid out have varied every year. In 2012, for instance, a year in which the markets rallied, the fund paid out a dividend ₹0.90 per unit in all, through two dividend declarations.

But in 2013, a year marked by volatility in the markets, the fund paid out a lower ₹0.50 per unit in all, and only once.

Even if you choose Monthly Income Plans (MIPs) which invest in a combination of debt and equity, it is not mandatory for fund houses to pay dividends or the same percentage of dividends every month or quarter. Besides, returns on MIPs have also become less attractive on a post-tax basis because of the impact of dividend distribution tax on non-equity funds, including MIPs. Due to these reasons, investing in a mutual fund for the purpose of regular income, that too for dividends higher than prevailing deposit rates, may not work in your favour all the time.

Secondly, being a senior citizen, you must remember that chances of capital erosion are high in any stock market-linked product. Unless you are willing to take this risk, it may be safer for you to stick to the Post Office Senior Citizens Savings Scheme or AAA rated corporate or NBFC deposits which may offer slightly higher interest rates than bank deposits. If you still want to go ahead, you can perhaps choose UTI Mastershare which has one of the best track records for paying dividends.

I am 60 and I have been investing in mutual funds since four years. I invest via SIPs of ₹2,000 each in HDFC Top 200, DSP BlackRock Top 100 and Franklin India Prime Plus. Of these, only Franklin India Prima Plus has given me good returns. Please advise if I should continue with the other two funds.

Ramchandran

Assuming you invest ₹2,000 in each of the funds on the first of every month, DSPBR Top 100 and HDFC Top 200 would have returned 11-13 per cent in the last four years.

On the other hand, SIPs in Franklin Prima Plus would have brought in a higher 19-20 per cent. While a return of 11-13 per cent per se is not bad, one reason for the comparatively subdued performance could be because these funds invest predominantly in large-cap stocks. On the other hand, Franklin Prima Plus is a multi-cap fund benchmarked to the Nifty 500, which takes on higher risk for higher returns.

Fund-specific factors could have played a role in pulling down the returns as well. HDFC Top 100, for instance, has bet quite early on an economic recovery by taking bigger exposure to metals, financials and capital goods.

But the fund ended up taking a beating when markets turned volatile since 2015 and these stocks witnessed sharp falls. DSPBR Top 100 too has seen a strategy change and a fund manager change in the last one year and its performance is bettering. Overall, both these funds have outdone their respective benchmarks over one-, three- and five-year periods and will be suitable if you are looking for stable returns over the long term.

But at your age, diversified equity funds require a high risk appetite. If you don’t have one, you can move to equity-oriented balanced funds which invest up to 65 per cent in equity and the remaining in debt.

We hope you have enough investments in debt instruments as well.

Send your queries to mf@thehindu.co.in

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