For investors who are looking for a passive income with low risk, dividend yield funds are suitable ideally
Stock markets have been volatile in recent times due to India-Pakistan geopolitical tension and global economic uncertainty fuelled by US tariff war. Operation Sindoor further escalated the nervousness in the markets. On Friday – the third day since the launch of the operation – as many as 1,738 stocks declined on the NSE against 1,065 gainers. If the Operation Sindoor extends further, the negative trend will gain further strength.
When geopolitical tensions rise, the financial markets tend to react negatively due to increased uncertainty, risk aversion and the potential for economic disruptions. Though the headline benchmarks such as Nifty50 and the BSE Sensex till now has been uncharacteristically calm and seem resilient, the broader markets have been in deeper pain.
Since their peak in September 2024, Nifty50 and Sensex have fallen 8.5 per cent and 7.5 per cent, respectively. As against this, Nifty SmallCap 100 crashed 18.5 per cent and Nifty MidCap 100 nearly fell 13 per cent; BSE Midcap index tumbled 15 per cent and BSE SmallCap index plunged 19.2 per cent.
Low risk schemes
For investors who are looking for a passive income with low risk, dividend yield funds are suitable ideally. During these kinds of uncertainty and volatile situation, investments in dividend yield mutual funds may protect investors from heavy downfall. Typically, dividend yield funds, due to their safe-haven appeal, gain relevance during such uncertain times.
Dividend yield is nothing but how much a company pays out in dividends each year relative to its stock price.
Currently, there are 10 funds catering to this space with a total AUM of about ₹30,000 crore, most of them tracking the Nifty Dividend Opportunities 50 TR Index. The benchmark is designed to provide exposure to high yielding companies listed on the NSE while meeting stability and tradability requirements, said the exchange’s fact sheet. “The methodology employs a yield driven selection criteria that aims to maximise yield while providing stability and tradability,” it further said.
Dividend yield funds provide medium to long term capital gains and/or dividend distribution by predominantly investing in a well diversified portfolio of equity and equity related instruments of dividend yielding companies.
Portfolio stocks
Some of the top holdings of these funds included NTPC, HDFC Bank, ICICI Bank, Infosys, Tech Mahindra, Maruti Suzuki, ONGC, Sun Pharma, REC, Bharti Airtel, Kotak Mahindra Bank. Dividend companies are sector agnostic and reflect optimum cashflow management; Dividend companies with stable cashflows also have the potential for long-term growth compounding,
The Nifty Dividend Opportunities 50 Index has produced an annualised return of 13.35 per cent (as of April 30, 2025) since its inception (March 22, 2011). Over a 5-year period, these schemes have produced a CAGR between 24.2 and 35.5 per cent. There are five schemes that were launched a little over 10 years. They have produced a return between 12.5 and 16.8 per cent for a 10-year period. These returns compare well with active funds and large-cap schemes. Some even beat them by handsome margins.
So, investors who wish to wade through tough time like this, can bet on dividend yield schemes , as correction in stocks provide them an ideal opportunity to enhance the fund’s return.
However, the expense ratio for regular plans ranged from 1.78 per cent to 2.38 per cent and for direct plans, it varied between 0.47 per cent and 1.44 per cent. These are on the higher side and if the fund houses manage to reduce the expense ratio, that would better the return even more.
Published on May 9, 2025
