AssetPlus NFO Review - Tata Dividend Yield Fund

by Anushi Jain

Tata AMC is launching an NFO, which is set to open for subscription from May 3rd, 2021 and closes on May 17th, 2021.

Investment Objective: The investment objective of the scheme is to provide capital appreciation and dividend distribution by predominantly investing in a diversified portfolio of equity and equity related instruments of dividend yielding companies.

Investment Strategy: The scheme will invest in dividend yielding stocks across market capitalisations. The fund falls under the multi-cap category and will hold atleast 25% in the large, mid and small cap category each. The fund strategy is to invest in a blend of stable growth companies and value-oriented companies.

Fund Manager: Mr. Sailesh Jain, Mr. Rahul Singh

Benchmark: Nifty Dividend Opportunities 50 TRI

Fund Management Process:

The fund will be constructed following 3 broad principles:

  1. Investments in Dividend Yielding stocks - The Scheme shall invest in dividend yielding companies which have paid dividends (or done a buyback) in at least 1 out of the last 3 financial years. The scheme would currently  prefer to invest in companies with dividend yields higher than Nifty 50 Dividend yield.
  2. Contra to Consensus approach portfolio - The Fund would actively seek to capture the journeys of companies from Contrarian bets to Consensus bets . This means that the fund will buy companies when they are not popular in the market and hold them until the sector or company gains momentum and are preferred bets in the market and capture the gains during this period.
  3. Portfolio Diversification - The Fund also has the flexibility to invest in REITs and InvITs and Overseas securities

Based on our analysis, we have observed the following pros and cons

Pros:

  1. Diversification across market caps and asset classes
  2. Low volatility as compared to broader market
  3. Higher return consistency due to dividend income in fund

Cons:

  1. Low ability to generate higher than benchmark returns during market rallies
  2. High dividend paying companies usually offer less price appreciation than growth companies

Past data suggests that high dividend yielding companies provide higher protection during market volatility and can appreciate in line with the benchmark during stable markets. With current market valuations on the higher side, such a fund can give low-volatile, stable returns, though they might not be very high. A small allocation to a dividend yield fund along with other equity funds can add diversification and minimise volatility to the overall portfolio. These funds are suitable for conservative to moderate equity investors who are looking to stay invested over 5 years.

It is of utmost importance that the fund should be discussed with your financial advisor and then ascertain whether it is suitable to invest. Always read the scheme documents fully before investing.