Dividend Yield Mutual Funds

A dividend yield fund must keep at least 80% of its money in equity, and invest predominantly in dividend-yielding shares. Equity means shares of companies.

A mutual fund is a pool of money from many people, invested by a professional manager. SEBI, the market regulator, sets the rules. Each fund sits in a category, SEBI's label for what that fund may hold.

Two words carry this category. A dividend is cash a company pays its shareholders out of its profits. Dividend yield is a share's yearly dividend divided by its price, shown as a percentage. An example with made-up numbers: a share priced ₹500 that pays ₹20 a year in dividends has a dividend yield of 4%.

SEBI's rule says "predominantly" and stops there. It sets no percentage for the dividend-yielding part. It sets no minimum yield, so there is no "high dividend" test.

You may still see 65% or "high dividend" quoted for this category. The rule in force is 80% equity, predominantly in dividend-yielding stocks, since 26 February 2026. Funds that already existed had until 26 August 2026 to comply.

The rule sets no company-size band either. Market capitalisation (market cap) is a company's size: its share price times the number of shares. AMFI, the mutual fund industry body, ranks listed companies by it. Ranks 1–100 are large cap, 101–250 mid cap, and 251 onwards small cap. A dividend yield fund may hold any of them.

The remaining money, up to 20%, can go into more shares, cash-like money market holdings, gold and silver instruments, or InvITs (infrastructure investment trusts). Each has its own SEBI limit.

One more rule: a fund house, the company that runs the funds, may offer only one dividend yield fund.

No, a dividend yield fund does not pay you a regular income by itself. The name describes what the fund holds, not how it pays you.

Beginners often mix up two separate things. One is the dividends that companies pay the fund. The other is a payout option the fund may offer you, called IDCW (Income Distribution cum Capital Withdrawal).

When a company in the fund pays a dividend, the cash goes to the fund. You don't receive it. The fund's own income is exempt from tax.

In the growth option, that cash stays invested and shows up in the NAV, the price of one unit of the fund. Nothing is paid to you. Nothing is taxed in your hands until you sell.

IDCW means payouts the fund makes from its income or gains. Each payout reduces the NAV by the amount paid. So IDCW adds no value. It moves money from the fund to your bank account, and that money becomes taxable in the year you get it.

A simple example, ignoring market moves on the day. Your IDCW units are worth ₹3,00,000 and the fund pays out ₹18,000. Afterwards the units are worth ₹2,82,000. The payout reaches your bank as ₹16,200, after ₹1,800 of TDS (tax deducted at source, before the money reaches you) (covered below). The units, the ₹16,200 and the ₹1,800 still add up to ₹3,00,000.

Neither the amount nor the timing of an IDCW payout is promised. Picking this category does not, on its own, give you a monthly income.

A dividend yield fund is not a low-risk choice: nearly every listed one read Very High on 29 September 2026.

That is the top level of the riskometer, the risk label SEBI makes every fund show. It has six levels from Low to Very High, and is checked every month.

The level comes from a SEBI formula applied to the fund's own holdings. For shares, it scores three things, including company size and daily price swings over two years.

A portfolio fully in shares scores High at best. Any mid or small cap, or one share whose daily swings run above 1%, lifts it to Very High.

For a sense of how far shares can fall, look at an index. An index is a list of companies picked by fixed rules, whose combined value is tracked daily. The NIFTY 50 holds 50 of them.

The NIFTY 50 fell 38.4% between 14 January and 23 March 2020. Suppose ₹50,000 had fallen that much. For a while it would have been worth ₹30,800. Between 8 January and 27 October 2008, the same index fell 59.9%.

The label can move. Each fund re-checks it monthly and publishes it within 10 calendar days of month-end. If it changes, the fund must tell its investors by notice and by email or SMS.

Dividend yield funds are taxed on two separate tracks. Gains are taxed when you sell units. IDCW, if you choose it, is taxed in the year it is paid.

The law in force is the Income-tax Act, 2025, from 1 April 2026.

When you sell. A fund is taxed as equity-oriented if at least 65% of its money is in Indian listed shares, as a yearly average. Your holding period is how long you owned a unit, from the day you bought it to the day you sell it.

• Held 12 months or less: the profit is a short-term capital gain, taxed at 20% (section 196).
• Held more than 12 months: it is a long-term capital gain, taxed at 12.5% (section 198). Only the part above ₹1,25,000 in a tax year is taxed.

Suppose you sell units held more than 12 months, at an assumed gain of ₹1,75,000. You have no other equity long-term gains that tax year. Only the part above ₹1,25,000 is taxed, which is ₹50,000. Tax at 12.5% is ₹6,250. Add 4% cess, an extra charge on the tax, of ₹250. That is ₹6,500 in all, assuming no surcharge (an extra charge on the tax once total income is above ₹50 lakh). No tax is deducted when a resident redeems, meaning sells units back to the fund.

If you choose IDCW. Each payout is added to your income and taxed at your slab rate, the rate on your normal income. TDS, tax deducted at source before money reaches you, is 10% on IDCW above ₹10,000.

Suppose you receive an IDCW payout of ₹18,000. The fund deducts 10% TDS, ₹1,800. If your income is in the 30% slab, tax on ₹18,000 is ₹5,400, plus 4% cess of ₹216, assuming no surcharge. That makes ₹5,616.

TDS is not an extra tax. It is credited against your tax for the year, so ₹3,816 is left to pay. If your final tax comes to less than the TDS, the difference is refunded when your return is processed.

Had the same ₹18,000 stayed in the growth option, nothing would be taxed that year. It would count only when you sell, as part of your capital gain.

All three keep at least 80% in equity. What differs is the rule for picking the shares.

• Dividend yield funds invest predominantly in dividend-yielding shares, of any company size.
• Value and contra funds: a value fund follows a value investment strategy, and a contra fund a contrarian one. A fund house may run both, if their portfolios overlap by at most 50%.
• Large cap funds keep at least 80% in the 100 biggest companies on AMFI's list, whether or not they pay dividends.

On AMFI's list for the six months to 30 June 2026, rank 100 was GAIL (India), at ₹1,06,346 crore of average full market cap. A dividend yield fund can own shares on either side of that line.

The risk labels look alike. Every listed value and contra fund, and every listed large cap fund, read Very High on 29 September 2026. Nearly every listed dividend yield fund did too.

Koshex suggests 5 years or more for dividend yield and large cap funds, and 5 to 7 years for value and contra funds. These are our suggestions, not SEBI rules.

Start with returns over 3 and 5 years. The table shows them as CAGR: the average yearly growth rate, as if the fund had grown at the same pace every year.

Compare each fund with the category averages: 3.0% over 3 years and 10.2% over 5 years. Of the 12 listed funds, 9 have a 3-year record, so only those are ranked on 3-year return and counted in the averages.

The 1-year average is -2.9%. One year says little about a 5-year holding. LIC MF Dividend Yield Fund leads on 3-year CAGR, at 8.5%. That is a record of the past, not a forecast.

Next, the expense ratio: the fund's yearly fee, shown as a percentage of your money and taken out of the fund's value. SEBI caps it. An actively managed equity fund may charge a base fee of up to 2.10% a year on its first ₹500 crore. The table shows what each fund actually charges.

AUM (assets under management) is the current total value of the money a fund manages. It is not the amount people paid in. Together, the listed funds hold ₹32,126 Cr.

Check each fund's own riskometer too, since it is updated every month.

Then check the option you are choosing. Growth or IDCW decides when you are taxed, as shown above.

Koshex sells regular plans, the version of a fund bought through a distributor. A distributor is a registered intermediary that helps you buy and manage funds; Koshex holds AMFI registration ARN-154632. We help you choose a fund that suits your goal and timeline. Later, we review your holdings and flag changes, such as a fund's category, risk or ranking shifting.

Koshex suggests 5 years or more for money in a dividend yield fund. That is our suggestion, not a SEBI rule.

There is no lock-in, a period during which you cannot sell at all. When you redeem, meaning sell units back to the fund, the money must reach you within 3 working days. Some funds charge an exit load, a fee for selling within a set time after buying. Each fund sets its own, so check that fund's page.

How much fits is personal. It depends on when you need the money and what equity funds you already hold. It also depends on how large a fall you could sit through without selling. Picture ₹50,000 turning into ₹30,800, as in the 2020 fall above. If a fall like that tempts you to sell, Koshex talks it through with you before you redeem.

A SIP invests a fixed amount at regular intervals, usually monthly. Each instalment buys units at that day's NAV. Each also has its own holding period, and so its own 12-month line for tax. An instalment bought on 10 January 2026 is long-term only if sold after 10 January 2027.

A lumpsum puts a larger amount in at one time. It also starts one holding period, from that single purchase date.