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For investors of all hues, especially conservative ones, cashflows from the companies in their portfolio are a critical deciding factor. Steady dividend payouts are generally a sign of a financially strong company that is fetching money for shareholders. Usually, companies paying higher dividends are relatively less volatile and deliver steady rather than outstanding returns.
In the current environment, when markets are touching previous highs, conservative investors can consider dividend yield funds for their portfolio.
In this regard, Templeton India Equity Income can be a good addition to your portfolio in the dividend yield category, given its ability to deliver steady above-average returns over the long term without taking too many risks.
Investors can also consider starting an SIP (systematic investment plan) in the scheme with a long-term perspective of 7-10 years for their satellite portfolio.
With investments in quality dividend yielding stocks, REITs (real estate investment trusts) and a few well-know overseas names, the fund can be a good diversifier for investors with a low-risk appetite.
Above-average performance
Franklin India Equity Income has a track record of over 17 years. On a point-to-point basis, the fund’s three-, five- and 10-year returns are better than its benchmark — Nifty Dividend Opportunities 50 TRI. Over the long term, it has delivered 2-3 percentage points more than its benchmark index. In the dividend yield category, it is among the top few funds in terms of returns generated over the long term.
When rolling returns are taken into consideration, the fund comes across as fairly consistent. Three-year rolling returns from June 2013 to June 2023 indicate that the fund managed to generate an average 14.6 per cent, better than the Nifty Dividend Opportunities 50 TRI’s 11.3 per cent.
Again, when five-year rolling returns over the past 10 years are considered, Franklin India Equity Income has beaten its benchmark over 89 per cent of the times, indicating a fair degree of consistency in outperformance.
Over the past 10 years, SIP investments in the fund would have generated a return of 16.1 per cent, as per Valueresearch data, which is quite healthy even by regular diversified equity category standards.
Low-risk portfolio
Given that the fund’s mandate is to invest predominantly in dividend yielding stocks, it holds segments that offer attractive payouts. Power and software are two sectors that have generally figured among the fund’s top couple of holdings over the years. Diversified FMCG companies and gas also feature here.
A key investment component in the fund’s portfolio is the allocation to REITs. This can go in excess of 5 per cent of the portfolio at times. Embassy and Brookfield REITs are the usual holdings of the fund, given the regular payouts these instruments offer.
Templeton India Equity Income also increases cash positions at times. The fund increases cash holdings to 5-6 per cent of the portfolio when a defensive approach is required to insulate the portfolio from market gyrations.
Another interesting aspect of the fund is its overseas stock and fund holdings. In areas such as IT hardware, industrial manufacturing, food products and consumer durables, the fund invests in overseas stocks, given the limited opportunities to invest in these segments in India.
The investments are predominantly in stocks listed in Taiwan and Hong Kong. MediaTek, Novatek Microelectronics, Fila Holdings, Xtep International Holdings, Xinyi Solar Holdings and Unilever PLC are some of the overseas stocks that feature in the fund’s portfolio.
With a strong dividend yielding portfolio, cash and REIT holdings to reduce risk, the overall volatility in the fund is fairly low, which makes it suitable for conservative investors.
Since dividend yielding stocks are usually in a somewhat mature stage of their lifecycles, investors should not expect growth-portfolio like returns. There can be periods of underperformance, like in the past year when it has lagged its benchmark.
But over longer timeframes, Templeton India Equity Income is a steady compounder for investors.
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