NFO analysis: Tata Dividend Yield Fund

Henil Shah
NFO analysis: Tata Dividend Yield Fund

Tata Mutual Fund has launched Tata Dividend Yield Fund on May 3, 2021. This scheme would be investing in companies having better dividend yield. It is an open-ended equity scheme that seeks to predominantly invest in dividend-yielding stocks. 

Rahul Singh, CIO-equities, Tata Asset Management said, “Nifty FY22 price-earnings ratio (PER) at ~20x is in the fair value range after factoring in the robust earnings recovery in the medium-term coupled with low-interest rates. However, given the evolving macro risks to earnings at the current valuation, volatility is here to stay in the short term. With such a backdrop of earnings, low-interest rates and better prospects for the domestic cyclical, we are introducing a fund which would give an opportunity to earn regular dividend with capital appreciation.” 

Sailesh Jain, Fund Manager Equities, Tata Mutual Fund said, “Tata Dividend Yield Fund portfolio would largely consist of companies paying dividends higher than the market. This fund would therefore provide a healthy mix of both stable growth companies and value segments of the market. Our analysis of past data suggests that high dividend-paying companies generally provide greater protection during market volatility and generate gains that are in line with the broader market when the market stabilizes. In addition to the stable & growing companies’ paying dividend, we may identify and include out-of-favour dividend-paying.” 

Tata Dividend Yield Fund’s new fund offer (NFO) subscription will close on May 17, 2021. It will further re-open for subscription on May 27, 2021. 


Click here to access its scheme information document. 



This scheme aims to provide capital appreciation and/or dividend distribution by investing predominantly in a well-diversified portfolio of equity and related instruments of dividend-yielding companies. 


Asset allocation 


Indicative allocations
(per cent of net assets)

Risk Profile





Equity and equity-related instruments of Dividend Yielding Companies




Other Equity & Equity related Instruments of Companies other than above




Debt & Money Market Instruments



Low to Medium

Units issued by REITs & InvITs



Medium to High


The above asset allocation shows that at all times, it will not invest less than 65 per cent in dividend-yielding securities.  



The performance of this scheme will be benchmarked against the Nifty Dividend Opportunities 50 Total Returns Index (TRI). However, its true peers would be other funds available in the dividend yield category. Moreover, Nifty Dividend Opportunities 50 TRI includes the stocks such as TCS, ITC, Infosys, Hindustan Unilever, L&T, etc. 


Investment strategy 

At the time of investment, the scheme seeks to invest primarily in equity and equity-related instruments of dividend-yielding companies. Moreover, companies might also opt for a buyback in addition to or as an alternative to dividend, providing a yield to shareholders. Furthermore, this fund would consider investing in those dividend-yielding stocks, which have paid dividends or have done a buyback in at least one of the three preceding financial years. 

Having said that, the trailing dividend yield will be an important factor in selecting a stock. Apart from that, the fund manager will also look at the business fundamentals, industry outlook, absolute as well as relative valuations, growth outlook, and corporate governance. In order to achieve diversification, this fund may also consider investing up to 35 per cent of its assets in companies other than dividend-yielding companies. 

Further to protect the value of the portfolio and enhance unit holders' interest, this scheme may also use various derivatives and hedging products from time to time, as would be available and permitted by the Securities & Exchange Board of India (SEBI). 


Fund manager 

This scheme will be co-managed by Sailesh Jain, who would be the lead fund manager of the scheme followed by Rahul Singh, who is CIO – Equities, Tata Mutual Fund, Venkat Samala, and Murthy Nagarajan, who is Head – Fixed Income, Tata Mutual Fund. All of them are highly qualified and experienced fund managers with a good amount of fund management experience. Apart from this scheme, they also manage and co-manage other schemes of Tata Mutual Fund. 


Our take 

Presently, there are overall seven dividend yield funds; out of which, five have a performance history of greater than three years. In order to understand whether or not it is wise to opt for dividend yield funds, we need to check whether they can beat S&P BSE Sensex and S&P BSE 500. The average three-year returns of the category are 8.36 per cent whereas, the best and the worst-performing fund during the same period gave around 10.71 per cent and 4.35 per cent, respectively. Now let us have a look at the returns of S&P BSE Sensex and S&P BSE 500 during the same period. The three-year compounded annual growth rate (CAGR) of S&P BSE Sensex and S&P BSE 500 works out to be 11.5 per cent and 9.94 per cent, respectively. However, if we look at these funds in terms of risk then, the average beta of the category stands at 0.66 as against the market beta of one. However, even if we assume that this scheme would perform better than the category, still it is assumed that it may not be able to beat S&P BSE Sensex and S&P BSE 500. This leads us to a conclusion that, rather than investing in a dividend yield fund, it makes complete sense to invest in a Flexi-cap fund that would provide you better returns with similar risk. 

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1 comments on article "NFO analysis: Tata Dividend Yield Fund"

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Ganapathy Sastri

There is hardly any company in the entire Indian stock market that gives a dividend yield exceeding what you get on bonds ie 8%. In the US there are umpteen companies, High Yield MFs and ETFs that yield more than what a IG bond, with maturity of five years, yields.

Most private companies pay dividends with utmost reluctance and may decrease the pay out even though Net Income may have gone up.

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