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Tata Dividend Yield Fund: Seizes Opportunities from High Dividend Yield Stocks
May 7, 2021

Dividends are mainly a portion of the income that a company distributes amongst the shareholders. Having a good track record of dividend payments annually is a strong reflection of growth and sustainability of the business and it indicates that the company's stocks would provide steady returns in future.

Investing in dividend yield stocks provides you with wealth creation in form of capital appreciation and dividend payouts by the company. Only the companies with steady growth in earnings, stable and scalable business models and are in mature phase with high cash flows can manage to share profits in form of dividend payouts on consistent basis.

The dividend yield stocks offer downside risk protection during volatile markets and are considered a good option in uncertain times such as current market scenario due to impact of the second wave of COVID-19. But since selecting such high-dividend yield stocks for an investor directly may not be easy and hence, you may consider investing in dividend yield stocks through mutual funds.

Tata Mutual Fund has launched Tata Dividend Yield Fund; it is an open-ended equity scheme predominantly investing in dividend yielding stocks.

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On the launch of this scheme Mr Rahul Singh CIO - Equities at Tata Asset Management Ltd. 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."

Table 1: Details of Tata Dividend Yield Fund

Type An open ended equity scheme predominantly investing in dividend yielding stocks. Category Dividend Yield Fund
Investment Objective The investment objective is to provide capital appreciation and/or dividend distribution by investing predominantly in a well-diversified portfolio of equity and equity related instruments of dividend yielding companies. However, there is no assurance or guarantee that the investment objective of the Scheme will be achieved. The scheme does not assure or guarantee any returns.
Min. Investment Rs 5000/- and in multiples of Re 1/- thereafter. Additional Purchase Rs 1000/- and in multiples of Re 1/- thereafter. Face Value Rs 10/- per unit
Plans
  • Direct
  • Regular
Options
  • Growth
  • Dividend
Entry Load Not Applicable Exit Load
  • Redemption/Switch-out/SWP/STP on or before expiry of 365 days from the date of allotment: If the withdrawal amount or switched out amount is not more than 12% of the original cost of investment-NIL
  • Redemption/Switch-out/SWP/STP on or before expiry of 365 days from the date of allotment: If the withdrawal amount or switched out amount is more than 12% of the original cost of investment-1%
  • Redemption/Switch-out/SWP/STP after expiry of 365 days from the date of allotment-NIL
Fund Manager
  • Mr Sailesh Jain
  • Mr Rahul Singh
  • Mr Venkat Samala
  • Mr Murthy Nagarajan

Benchmark Index Nifty Dividend Opportunities 50 TRI
Issue Opens: May 03, 2021 Issue Closes: May 17, 2021
(Source: Scheme Information Document)

What will be the Investment Strategy for Tata Dividend Yield Fund?

This scheme will predominantly invest in a well-diversified portfolio of equity and equity related instruments of dividend yielding companies at the time of investment. The companies may also choose to do a buyback in addition to or as an alternative to dividend because this also constitutes a yield to shareholders.

The scheme will consider dividend yielding stocks which have paid dividend (or done a buyback) in at least one of the three preceding financial years. The dividend yield strategy is considered due to the recent monetary policies highlighting RBI's intention to keep liquidity support and announcement of G-Sec acquisition plan, the yields are expected to be range bound at the current levels.

Although the dividend yield will be an important factor in stock selection, the fund manager will also consider other factors like business fundamentals, industry outlook, absolute as well as relative valuations, growth outlook and corporate governance while making an investment decision.

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About the benchmark

The NIFTY Dividend Opportunities 50 Index is designed to provide exposure to high yielding companies listed on NSE while meeting stability and tradability requirements. The methodology employs a yield driven selection criteria that aims to maximize yield while providing stability and tradability. Currently the index comprises of 50 companies listed at the National Stock Exchange (NSE).

As mandated by SEBI this scheme will invest 65% of its assets in equity and equity related instruments of dividend yielding companies, it may also invest up to 35% of its assets in other equity and equity related instruments of companies or it may also invest up to 35% of its assets in Debt and money market instruments and up to 10% in units issued by REITs & InvITs.

Under normal circumstances, asset allocation will be as under:

Table 2: Asset Allocation of Tata Dividend Yield Fund
Instruments Indicative Allocations
(% of Net Assets)
Risk Profile
High/Medium/Low
Minimum Maximum
Equity and Equity related instruments of dividend yielding companies 65 100 High
Other equity and equity related instruments of companies other than above 0 35 High
Debt and money market instruments 0 35 Low to Medium
Units issued by REITs & InvITs 0 10 Medium to High
(Source: Scheme Information Document)

Who will manage Tata Dividend Yield Fund?

Tata Dividend Yield fund will be managed by Mr Sailesh Jain as Lead Fund Manager, Mr Rahul Singh as Co-Fund Manager, Mr Venkat Samala for overseas investments and Mr Murthy Nagarajan for debt portfolio.

Mr Sailesh Jain is Fund Manager at Tata Asset Management Ltd. and has over 15 years of experience in financial services. Prior to this, he was associated with IDFC Securities Ltd as Head - Derivatives, Quant Broking Pvt. Ltd as Vice President - Institutional Sales - Derivatives and cash, IIFL (India Infoline) as Vice President - Institutional Sales -Head Equity Derivatives.

Mr Jain's qualification includes MBA (Finance) and currently other schemes managed by him are; Tata Equity Savings Fund, Tata Arbitrage Fund, Tata Nifty Exchange Traded Fund, Tata Nifty Private Bank Exchange Traded Fund, Tata Quant Fund, Tata Balanced Advantage Fund and Tata Multi Asset Opportunities Fund

Mr Rahul Singh is Chief Investment Officer-Equities at Tata Asset Management Ltd. and has over 25 years of experience in financial services. Prior to this, he was working with Ampersand Capital Investment Advisors LLP as Managing Partner, Standard Chartered Securities Ltd. as Managing Director, Citigroup Global Markets as Senior Research Analyst.

His qualifications include, B.Tech and PGDBM, currently other schemes under his management are; Tata Balanced Advantage Fund, Tata Focused Equity Fund, Tata Multi Asset Opportunities Fund.

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Mr Venkat Samala is Research Analyst, tracking textiles, building materials, aviation, real estate and hospitality sectors at Tata Asset Management Ltd. and has over 6 years of experience in financial services. Prior to this, he was associated with Quality Engineering & Software Technologies Pvt. Ltd. an aerospace services firm as a senior design engineer.

Mr Samala's qualification is MBA and currently other schemes managed by him are; Tata Focused Equity Fund, Tata Digital India Fund and Tata Large Cap Fund.

Mr Murthy Nagarajan is Head- Fixed Income at Tata Asset Management Ltd. and has over 25 years of experience in financial services. Prior to this, he was working with Quantum Asset Management Co. Pvt. Ltd. as Head - Fixed Income, Tata Asset Management Ltd. as Head -Fixed Income, Mirae Asset Global Investment India Pvt. Ltd. as Head - Fixed Income, Tata Asset Management Ltd. as Head -Fixed Income.

His qualifications include, B. Com, M. Com, PGPMS and ICWA (Inter), currently other schemes under his management are; Tata Gilt Securities Fund, Tata Short Term Bond Fund, Tata Medium Term Fund, Debt Portfolio of Tata Hybrid Equity Fund, Tata Equity Savings Fund, Tata Retirement Savings Fund - Progressive, Moderate & Conservative Plan and Tata Multi Asset Opportunities Fund.

Fund Outlook - Tata Dividend Yield Fund

Tata Dividend Yield Fund will aim to invest in companies with dividend yields higher than the market, having the ability to increase dividend across different economic environments and have stable cash flows.

The scheme offers investors a well-diversified portfolio which will seek to keep predominant exposure to large cap stocks, explore capital appreciation opportunities across sectors and flexibility to exploit strategic opportunities in domestic and overseas market.

This scheme will be actively managed by fund manager to identify and generate alpha, the high-dividend paying companies will be providing investors a mix of stable growth companies and value segments of the market. The fund may also invest in out-of-favour companies that in future may benefit from re-rating based on factors like industry fundamentals or enhanced capital allocation etc.

The dividend yield funds may perform better during a downturn in market conditions due to better valuations and investors look at dividend yield funds to ensure certain amount of return on their investment. However, in a bull market investors seek capital appreciation through high growth stocks and the price appreciation of dividend yield stocks might be at lower rate than other stocks.

Given that the interest rates are expected to rise over a period, the prospects from certain high dividend stocks may grow thin.

Therefore, if you are planning to invest in Tata Dividend Yield Fund, consider the risks involved and ensure that you have a high-risk appetite, a long investment horizon of at least 5 years and an investment objective that aligns with the fund.

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Author: Mitali Dhoke

This article first appeared on PersonalFN here.

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PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.

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