About Dividend Yield Mutual Funds
Dividend yield mutual funds are open-ended equity investments that invest primarily in dividend-yielding equities. These stocks are issued by corporations that regularly distribute a portion of their revenue to shareholders as dividends on a regular basis.
Companies that provide consistent dividends are often well-established and profitable with stable cash flows. Dividend yield mutual funds invest in such companies in order to generate regular income while also potentially increasing their capital.
As per SEBI norms, dividend yield mutual funds must invest a minimum of 65% of their assets in equity and equity-related instruments of dividend-yielding companies. The remaining allocation may be invested in other authorised instruments consistent with the scheme's purpose.
How Do Dividend-Yield Funds Work?
Dividend-yield funds pool funds from investors and then invest it primarily in dividend-yielding stocks. These stocks typically have consistent earnings and strong cash flows, making them ideal for income-oriented strategies.
Here’s how fund managers choose stocks for dividend-yield funds:
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Dividend Track Record: They look for companies that have a consistent record of paying dividends.
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Yield Relative to Market: Stocks with dividend yields that outperform the overall market or equivalent benchmarks are selected.
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Company finances: Managers assess financial stability, earnings consistency, cash flow strength, and payout history.
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Risk and Valuation: Before being included in the portfolio, stocks are evaluated based on company risk, debt levels, and value measures.
Hence, managers aim for a diversified portfolio of high dividend-yielding equities, balancing stable income with long-term capital growth potential.
Top 10 Dividend Yield Mutual Funds to Invest in
The following are the top Dividend Yield Funds in India:
| Name | AUM | ↓CAGR 3Y | Absolute Returns 1Y |
| ICICI Pru Dividend Yield Equity Fund | 6,400.12 | 24.61 | 17.5 |
| LIC MF Dividend Yield Fund | 649.64 | 22.89 | 16.57 |
| UTI Dividend Yield Fund | 3,945.70 | 20.97 | 13.92 |
| Tata Dividend Yield Fund | 1,004.53 | 20.47 | 24.17 |
| Aditya Birla SL Dividend Yield Fund | 1,523.56 | 20.1 | 12.76 |
| HDFC Dividend Yield Fund | 5,862.99 | 18.84 | 13.4 |
| Franklin India Dividend Yield Fund | 2,416.87 | 18.25 | 10.12 |
| Sundaram Dividend Yield Fund | 900.4 | 18.12 | 13.8 |
| SBI Dividend Yield Fund | 8,912.60 | - | 13.49 |
| Baroda BNP Paribas Dividend Yield Fund | 718.1 | - | 14.82 |
Note: The data above is as of Feb 18, 2026 and is sorted based on 3-year CAGR.
ICICI Pru Dividend Yield Equity Fund
ICICI Pru Dividend Yield Equity Fund seeks to provide medium to long term capital gains and dividend distribution by investing in a well diversified portfolio of predominantly equity and equity related instruments that offer attractive dividend yield.
The fund has an expense ratio of 0.57% and is managed by Mittul Kalawadia.
LIC MF Dividend Yield Fund
LIC MF Dividend Yield Fund seeks to provide long term capital appreciation and dividend distribution by investing predominantly in dividend yielding equity and equity related instruments.
The fund has an expense ratio of 0.77% and is managed by Dikshit Mittal and one other co manager.
UTI Dividend Yield Fund
UTI Dividend Yield Fund seeks to generate long term capital appreciation and income by investing predominantly in dividend yielding equity and equity related securities.
The fund has an expense ratio of 1.44% and is managed by Amit Premchandani.
Tata Dividend Yield Fund
Tata Dividend Yield Fund seeks 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.
The fund has an expense ratio of 0.61% and is managed by Sailesh Jain and two other co managers.
Aditya Birla SL Dividend Yield Fund
Aditya Birla SL Dividend Yield Fund aims to generate returns by investing in high dividend paying companies, building a portfolio that provides high dividend yield, substantial capital protection, and a strong possibility of capital gains.
The fund has an expense ratio of 1.35% and is managed by Dhaval Gala.
HDFC Dividend Yield Fund
HDFC Dividend Yield Fund seeks to provide capital appreciation and/or dividend distribution by predominantly investing in a well diversified portfolio of equity and equity related instruments of dividend yielding companies.
The fund has an expense ratio of 0.71% and is managed by Gopal Agrawal.
Franklin India Dividend Yield Fund
Franklin India Dividend Yield Fund seeks to provide a combination of regular income and long term capital appreciation by investing primarily in stocks that have a current or potentially attractive dividend yield using a value strategy.
The fund has an expense ratio of 1.26% and is managed by Rajasa Kakulavarapu and two other co managers.
Sundaram Dividend Yield Fund
Sundaram Dividend Yield Fund aims to provide capital appreciation by investing predominantly in a well diversified portfolio of companies that have a relatively high dividend yield.
The fund has an expense ratio of 1.04% and is managed by Siddarth Mohta.
SBI Dividend Yield Fund
SBI Dividend Yield Fund seeks to provide investors with opportunities for capital appreciation and/or dividend distribution by investing predominantly in a well diversified portfolio of equity and equity related instruments of dividend yielding companies.
The fund has an expense ratio of 0.83% and is managed by Nidhi Chawla.
Baroda BNP Paribas Dividend Yield Fund
Baroda BNP Paribas Dividend Yield Fund seeks to provide medium to long term appreciation by predominantly investing in a well diversified portfolio of equity and equity related instruments of dividend yielding companies. However, there can be no assurance that the investment objective of the scheme will be achieved.
Who Should Invest In Dividend Yield Mutual Funds?
Dividend yield mutual funds are ideal for individuals seeking equity exposure with lower volatility compared to wider market funds. Investors can assess these funds based on the following criteria:
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Income-oriented investors: Ideal for individuals seeking regular income as well as potential capital growth.
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Moderate risk appetite: These funds frequently invest in established companies, which may be less volatile than mid- or small-cap stocks.
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Long-term investing horizon: A holding period of 3-5 years can help regulate short-term market swings.
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Portfolio diversification: Dividend yield funds may enhance growth-oriented equity funds in a diverse portfolio.
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Preference for stable businesses: Investors who seek companies with reliable earnings and solid cash flows may find this category appropriate for their approach.
How To Invest in Dividend Yield Funds on Angel One?
Investing in the dividend yield Mutual Fund is hassle-free when done through your Angel One account. You just have to follow these simple steps:
Step 1: Log in to your Angel One account.
Step 2: Choose a dividend yield fund that suits your needs and risk profile. You can learn more about each dividend yield fund on the Angel One app. Things to consider at this stage are:
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Search for the fund you want to invest in.
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Analyse the fund’s past performance, tax incidence, and the sectors and companies it invests in. You can also calculate the potential returns using the calculator.
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Evaluate the fund’s level of risk, its ratings and expense ratio.
Step 3: Once you finalise the dividend yield fund(s) you want to invest in, open your Angel One account, go to the Mutual Funds section, and look for it.
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Decide whether you want to invest via SIP or make a one-time investment
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Decide your monthly SIP date. Now, enter the amount you want to invest and choose the payment mode.
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After placing the order, you can create an AutoPay to make hassle-free future installments in case of SIP investments.
Note: Investors can invest in mutual funds without a Demat account. Mutual fund units can be held in a statement of account (SOA) format.
Features Of Dividend Yield Mutual Funds
Dividend-yield funds invest in equity schemes with an emphasis on dividend-yielding stocks. Usually, these funds invest in stocks with a track record of paying higher dividends. Further, companies only announce dividends when they are earning profits. It aids the fund manager in selecting profit-making companies with a track record. These funds benchmark against the Nifty Dividend Opportunities 50 index.
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The fund manager must invest 65% of the corpus in companies paying dividends higher than the benchmark index.
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These fund managers often select companies based on their long-term market performance. Most of them would rather invest in blue-chip companies with a simple business model than in emerging companies with complex business models.
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Fund managers select stocks based on their track record of paying dividends.
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These funds aim to create a stream of regular income for investors to boost the value of their investments. According to SEBI, dividend-yield mutual funds must invest at least 65% of their assets in dividend-yielding stocks.
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Companies with higher EPS and EPS growth rates are likely to increase their dividend payouts in the future - hence, they are often bought by these funds.
Advantages of Investing in Dividend Yield Mutual Funds
Dividend yield mutual funds offer the following advantages:
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Potential for regular income: These funds invest in companies with a consistent dividend track record, which may support periodic income generation.
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Relatively lower volatility: Dividend-paying companies are often established businesses with stable earnings, which can reduce portfolio fluctuations compared to high-growth strategies.
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Equity participation with stability: Investors obtain exposure to stock markets while focusing on financially stable firms that generate consistent cash flows.
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Tax efficiency on capital gains: Equity-oriented dividend yield funds are taxed under equity mutual fund regulations, whereas long-term capital gains over ₹1.25 lakh are taxed at 12.5% (as per current legislation).
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Diversification benefit: These funds often invest across sectors, therefore distributing risk within the equity allocation.
Factors To Consider Before Investing in Dividend-Yield Funds
If you are wondering whether dividend-yield funds can be considered for investment, you must reflect on the specific elements relating to your own investment strategies and requirements:
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Investment Objective: Check whether you want a regular income or stable growth. Dividend yield funds are better suited to those prioritising income over aggressive capital gains.
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Dividend Track Record: Look at the consistency and history of dividend payouts in the fund’s portfolio. A strong dividend history may indicate the financial stability of the underlying companies.
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Expense Ratio: Lower expense ratios help preserve investor returns. Compare expense ratios across similar dividend yield funds before choosing.
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Risk Profile: Dividend yield funds carry equity market risk and may fluctuate with market cycles. Assess if this level of risk fits your overall risk tolerance.
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Fund Tenure and Experience: Older funds with longer track records provide performance history across market cycles. Newer funds may lack sufficient data for evaluation.
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Tax Implications: Understand that equity-oriented dividend yield funds are taxed under equity mutual fund provisions, including long-term capital gains tax above ₹1.25 lakh. Dividend payouts are added to taxable income and taxed as per your income slab, with applicable TDS.
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Diversification and Sector Exposure: Evaluate whether the fund invests across multiple sectors. A diversified portfolio may reduce concentration risk compared with theme-concentrated funds.
Taxability Of Dividend Yield Funds
The taxation of dividend yield mutual funds is determined by their equity allocation and holding time.
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If the fund invests at least 65% in equity (equity-oriented fund).
Most dividend yield funds fall under this category.
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Short-term capital gains (STCG): If units are sold within 12 months, the profits are taxed at 20% plus any relevant surcharges and cess.
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Long-term capital gains (LTCG): Up to ₹1.25 lakh each financial year are tax-free if kept for longer than 12 months. Gains beyond ₹1.25 lakh are taxed at 12.5% (no indexation).
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If the fund invests <65% in equity (non-equity fund)
Capital gains are taxed at the investor's income tax slab rate, regardless of holding term. The indexation benefit is not available for investments placed on or after April 1, 2023.
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Taxation of dividends
Dividends from mutual funds are included to the investor's taxable income and taxed at the appropriate slab rate. A 10% TDS is applied if a fund house's total dividend income exceeds ₹5,000 in a financial year.
