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The new scheme from ICICI Prudential Mutual Fund has a mandate to invest in companies with high dividend yield. Will it?
Following the success of several dividend yield schemes over the last few years, ICICI Mutual Fund plans to launch a dividend yield scheme—ICICI Prudential Dividend Yield Equity Fund. This scheme will compete with seven other schemes present in this category. Similar to the other schemes, the scheme from ICICI Mutual Fund will invest 65% to 100% in stocks that offer ‘attractive’ dividend yield. According to the offer document filed with the Securities and Exchange Board of India (SEBI), the fund manager would endeavour to maintain the portfolio’s dividend yield higher than the prevailing dividend yield of the S&P CNX Nifty. The scheme would focus on identifying and investing in a basket of high dividend yield companies, which are expected to declare dividends on a consistent basis.
There have been a few dividend yield schemes that have done well with a performance as good as other equity diversified schemes in the last five years. Recently, India Infoline launched its index scheme based on the CNX Dividend Opportunities Index—IIFL Dividend Opportunities Index Fund. The performance of the scheme from ICICI Prudential MF too will be benchmarked to the CNX Dividend Opportunities Index. High dividend yield stocks are more likely to provide greater degree of protection to investors than other stocks in falling equity market. However, our recent analysis of dividend yield schemes (Dividend Yield Schemes: A better choice?) has shown that the stocks picked do not necessarily have a high dividend yield and the top 10 holdings are similar to those of other equity diversified schemes. Their performance in earlier periods has been inconsistent as well. A lot would depend on the stock picking skills of the fund manager. The scheme would be managed by Mrinal Singh who also manages ICICI Prudential Discovery Fund, one of the better performing mid-cap schemes.
Below is how some of the schemes with the same investment objective have performed in the past (arranged alphabetically):
ICICI Prudential Mutual Fund has put up a relatively good performance in the past. (Read: Best Fund Houses ) The fund house figures among the top 10 fund houses in all the categories. Even over a fixed period of one year, three years and five years, there have been just two instances where a scheme has underperformed the benchmark. (See table below).
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