Birla Sun Life MF To Hook Into High Dividend Stocks

Mumbai, January 23: | Updated: Jan 24 2003, 05:30am hrs
Encouraged by the bullish undertone in the equity markets generated by companies with strong fundamentals, some mutual funds (MF) are looking forward to broadening their equity portfolio by investing in companies, which do not have great expansion plans, but reward shareholders by generating high dividend yields.

Pioneering this trend is Birla Sun Life MF. It has launched a new equity scheme christened Birla Dividend Yield Plus. This scheme will primarily invest in companies having a relatively high dividend yield. Explaining the rationale behind the launch of this scheme, Birla Sun Life Asset Management Company head (fixed income) A Balasubraniam said, In the present day situation, there are companies, which have sound businesses and strong cash generating ability. However, they generally do not have large expansion plans, but prefer to reward shareholders with large dividends. The net profit of these companies divided by the market cap would give you the quotient of their dividend yield which is as high as nine to 12 per cent in the current market scenario, as compared to government securities.

Stocks of such companies generally have low betas. This means that these stocks should rise and fall less than the market. This fund should thus be less volatile. We shall thus position the fund as a lower risk proposition as compared to a diversified growth fund, he added. Looking ahead at capital appreciation, Mr Balasubra-maniam pointed out that high dividend paying companies are considered undervalued and any appreciation in the stock price of these companies will be a bonus for the fund. As a risk-control measure, the fund will not invest more than 30 per cent in one sector and more than 10 per cent in one stock. Investments will also be in low-beta stocks to minimise the loss when the index falls. The fund had worked out an indicative sector allocation as follows auto at 10 per cent, chemicals at 12 per cent, oil at six per cent and banking at 24 per cent.

The scheme is open from January 23, 2003 to February 7, 2003. It offers two options growth and dividend. The minimum investment amount is Rs 5,000 and in multiples of Re one thereafter.