What are dividend yield funds?

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Bonus: Comments on HDFC Dividend Yield Fund (NFO)

1/ NFO: New Fund Offer is like an IPO of Mutual Fund Scheme. The scheme issues units to its subscribers at Face Value which is usually Rs. 10 per unit.

2/ The dividend yield is a financial metric that shows the amount paid by a company to its shareholders as a percentage of its stock price. Eg: A dividend of Rs. 10 on a stock of Rs. 200 would indicate a dividend yield of 5%.

3/ A dividend yield fund is a scheme that invests predominantly in companies having a track record of high dividend payouts along with occasional buybacks in order to return money to its shareholders.

4/ The fund bets on companies with stable cash flows along with predictable earnings. These are mature companies growing at a normal pace with lesser opportunities to reinvest their profits at a higher rate of return and hence chose to pay hefty dividends or consider buybacks.