SBI’s new dividend yield fund good for moderate risk takers

Moderate risk takers eyeing steady incomes through equities should consider a small allocation to the new fund offer (NFO) of the SBI Dividend Yield Fund. Aggressive investors who primarily come to equities as an asset class for growth can skip the offer.

The dividend yield category, a defensive strategy, is the smallest in terms of assets – managing just ₹10,200 crore out of the equity assets of ₹15.18 lakh crore, as most investors aim for growth from equity.

With assets under management of the mutual fund industry growing and investor interest increasing, AMCs believe equity investors seeking steady incomes are best served by a category like dividend yields.

Fund managers believe a defensive portfolio comprising stocks with a high dividend yield will shield equity portfolios during a downfall.

While building the portfolio for SBI Dividend Yield Fund, the fund manager will use a bottom-up approach to stock picking with no sector bias and will consider stocks which have paid a dividend or done a buyback in at least one of the three preceding financial years.

The Nifty Dividend Opportunities 50 Total Returns Index, a close replica that mirrors a dividend yield strategy, has a portfolio of companies spread across sectors like IT, fast-moving consumer goods, oil & gas, construction, power, metals & mining, auto and financial services.

The fund manager will invest a minimum of 65% of the corpus in dividend-paying companies, with the portfolio built in a manner that the overall dividend yield is at least 50% more than that offered by the Nifty50 pack. The scheme will be managed by Rohit Shimpi and its performance will be benchmarked against the Nifty 500 TRI. The minimum investment is ₹5,000 and the NFO closes on March 6.”The Nifty Dividend Opportunities 50 TRI trades at a discount to the Nifty 50,” said Vineet Nanda, founder of SIFT Capital. The index trades at a PE of 15.52 and a dividend yield of 3.65%, compared to the Nifty50 PE of 20.73 and a dividend yield of 1.39%. Such low valuations cushion portfolios against sharp falls. Nanda believes investors looking for some income creation a few years down the line from their equity portfolio, can use such a strategy and opt for systematic withdrawal plan which makes regular income flow more tax efficient.

“A dividend yield strategy is a defensive portfolio supporter. Investors with a low-risk appetite looking for long-term equity allocation could allocate 5-10% to such a strategy,” said Nirav Karkera, head-research, Fisdom.