Best Dividend Yield Mutual Funds

A dividend yield fund is a form of mutual fund, and it invests mostly in the companies holding the potential to pay regular dividends to its shareholders. 

(Meaning of Dividends:- It is a part of the profits that a company distributes to its investors, and a dividend yield is the ratio of the annual dividend for a share to the current share price, expressed in percentage.)

This fund aims at generating income for its investors by investing in high-dividend-yielding stocks. According to SEBI, a dividend yield fund is required to invest at least 65% of its assets in equity and equity-associated instruments. Go through the best dividend yield funds provided below for a better understanding.

The investors who can profit the most from investments in the best dividend-yield mutual funds are as follows:

1. Investors Looking for a Passive Income Source

This form of the fund is most suitable for investors who are looking for a passive income, given that dividend yield funds offer regular dividend payouts to their investors. 

2. Investors with Low-Risk Appetite

The risks of dividend yield funds are much less than other forms of equity mutual funds, which makes them low-risk funds and most suitable for investors who have a low-risk appetite.

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The major factors to be considered while finding the top dividend yield mutual funds and investing in them are-

1. Risk Tolerance

If you are a traditional investor who prioritises portfolio stability, you should search for funds that have a higher allocation to large-cap equities. This is because your primary goal is to reduce risk by investing in a program with low hazards. 

2. Investment Tenures

Like with other mutual funds, it is critical to look into the duration of the fund's investment tenure. A dividend yield fund that has seen the stock market's bull and bear phases will provide a higher return than newer companies.

Furthermore, newly launched companies advertising funds may perform well while markets are high, but to secure long-term benefits, investors should review the fund's tenure and performance across market cycles.

Investors can reap these benefits by investing in the best dividend yield mutual funds:

• Equity exposure with lower risk: Dividend yield mutual funds are relatively less impacted by market volatility than other equity-oriented MF schemes. Hence, investors who are seeking equity exposure and higher returns than fixed-income instruments, such as bank fixed deposits, can benefit from schemes of this sort. 
• High returns over a long term: Since dividend yield funds invest in shares of companies that have strong financials and a proven track record, they have the potential to generate high returns in future.

• Regular income: Since underlying companies in these schemes declare regular dividends, MFs can be an appropriate option for investors seeking regular income and stability.  

Investment routes: Investors can allocate their funds to these schemes via two routes – lump-sum and a Systematic Investment Plan (SIP). The first option allows an individual to invest the entire amount at once. By taking the SIP route, investors can allocate their savings to the best dividend yield mutual funds at fixed intervals, such as monthly, quarterly, or yearly.

While finding the best dividend yield mutual funds, ensure to go through the below-mentioned risks-

1. Inherent Risks of Mutual Funds

The inherent risks of mutual funds include liquidity risk, credit risk, market risk, concentration risk, and more. These risks are present in the case of dividend yield funds, too.

2. Greater Taxes

The government has shifted the tax incidence of dividend income; therefore, this factor increases the taxes associated with dividend yields. 

3. Returns Vary Based on Performance

These funds are less volatile since the fund's underlying investments are affected by market swings less. There is no denying, however, that the returns are subject to market risk and cannot be guaranteed.