Dividend yield funds invest in companies that regularly pay dividends to their shareholders. However, this should not be confused with the fund paying a guaranteed dividend to investors. Instead, the fund receives dividends from the companies in its portfolio.
As per Securities and Exchange Board of India (SEBI) regulations, these equity funds must invest at least 65% of their assets in dividend-yielding stocks. Dividend yield is a financial ratio that measures a company’s annual dividend payout relative to its share price.
Fund managers typically select companies with dividend yields higher than the broader market. These funds can generate returns through both capital appreciation and dividend income from the stocks they invest in.
As per July 2026 data from the Association of Mutual Funds in India (AMFI), there are 11 schemes in the dividend yield fund category. However, only two delivered more than 10% returns over the last 1 year.
Which dividend yield funds lead in returns?
| Dividend Yield Funds | 1-year Return |
| Tata Dividend Yield Fund | 16.26% |
| LIC MF Dividend Yield Fund | 12.58% |
*Source: Value Research, Direct Plans, Returns as on 14 August 2026
A ₹1 lakh lump-sum investment in Tata Dividend Yield Fund a year ago would have grown to about ₹1.16 lakh, based on a 16.26% return.
Similarly, ₹1 lakh invested in LIC MF Dividend Yield Fund would have grown to about ₹1.13 lakh.
Which dividend yield funds lagged in returns?
| Dividend Yield Fund | 1-year Return |
| Sundaram Dividend Yield Fund | 1.79% |
| UTI Dividend Yield Fund | 3.41% |
*Source: Value Research, Direct Plans, Returns as on 14 August 2026
At the other end of the spectrum, Sundaram Dividend Yield Fund and UTI Dividend Yield Fund delivered the lowest one-year returns among the 11 funds in the category.
Why did returns differ?
The difference becomes clearer when comparing the highest- and lowest-performing funds in the category—Tata Dividend Yield Fund and Sundaram Dividend Yield Fund.
Their portfolios differ in asset allocation, number of stocks, expenses, and holdings.
| Parameter | Tata Dividend Yield Fund | Sundaram Dividend Yield Fund |
| Equity | 96.42% | 90.56% |
| Real estate | 0.84% | 4.88% |
| Cash & cash equivalents | 2.40% | 4.56% |
| Debt | 0.34% | – |
| Number of stocks | 77 | 58 |
| Base expense ratio | 0.55% | 0.97% |
*Source: Value Research, Direct Plans, Data as on 31 July 2026
Tata Dividend Yield Fund has a higher equity allocation and a higher number of stocks in its portfolio.
The two schemes had only 24 stocks in common, with portfolio overlap of around 33%, indicating that their fund managers have taken different approaches to stock selection.
Tata Dividend Yield Fund’s top five holdings by assets were ICICI Bank, Radico Khaitan, Larsen & Toubro, HDFC Bank and PNB Housing Finance.
Sundaram Dividend Yield Fund’s top five holdings were HDFC Bank, ICICI Bank, NTPC, State Bank of India and Power Grid Corporation of India.
This shows that the differences in portfolio construction, sector exposure, cash allocation, and expenses can contribute to significant variations in returns between funds within the same category.
Disclaimer: This is purely for educational/informational purposes and should not be taken as any sort of investment advice. Always consult a SEBI-registered advisor before making any investment decisions.