Dividend Yield Funds are those mutual funds that need to invest at least 65% of the pooled funds in regular dividend-paying market securities. Like other mutual funds, Dividend Yield Funds are also available with both orientations – equity as well as debt, which you can choose as per your risk appetite. In this article, we bring you all the details regarding Dividend Yield Funds, such as which are the best dividend-paying mutual funds, how you can select them, and everything else. So, read on.
Learn the Basics: What are Mutual Funds?
Mutual funds are a type of financial instrument wherein money is pooled from various investors and is invested across different securities, namely equity shares, bonds, debt and money-market securities, and other assets.
A mutual fund is managed by a mutual fund house, which appoints a dedicated fund manager who takes all the investment decisions concerning the fund.
You can start investing in mutual funds as low as INR 100. And there are broadly two ways in which you can invest in a mutual fund – via a lump sum or a systematic investment plan (SIP). Under the lump-sum method, you invest a large amount in one go in a mutual fund, whereas, under a mutual fund sip, you can invest in small amounts at different frequencies, which can be monthly, quarterly, semi-annually, or annually.
Who Should Invest in Dividend Yield Funds?
Before getting on to the list of the best dividend paying mutual funds, let’s first understand who should invest in Dividend Yield Funds. These mutual funds are ideal for investors who seek to earn some but not a huge sum of money at different intervals without being actively invested. It is important to note that Dividend Yield Funds do not guarantee dividend payment and depend entirely on the performance of the securities and money market instruments in which the fund has invested.
Dividend Yield Funds are generally opted for by those first-time equity investors who do not wish to undertake a high degree of risk. This is because Dividend Yield Funds typically invest in the shares of blue-chip companies, which provide decent dividend pay-outs, even during volatile markets.

What are the Advantages of Investing in Dividend Yield Funds?
Investing in Dividend Yield Funds allows you to reap the following benefits –
- The best dividend paying mutual funds are capable of providing you with a regular flow of income by way of dividend payouts.
- Dividend Yield Funds help you keep your investment portfolio unaffected by volatile markets to a large extent as the underlying securities are generally quite strong fundamentally.
- If you invest in one of the best dividend paying mutual funds, you need not manage the fund yourself as the same is taken care of by an experienced fund manager.
- The dividend payouts of these funds are exempt from tax. The dividend payouts are only subject to a 10% TDS, which is deducted by the company providing it.
- Being market-linked instruments, Dividend Yield Funds provide you with a better yield than traditional investment instruments like fixed deposits, post office savings schemes, etc.
Best Dividend Yield Mutual Funds of 2023
The following is a list of the Best Dividend Paying Mutual Funds available in India in 2023 –
Top Dividend Paying Mutual Funds | 1-Year Return | 3-Year Return | 5-Year Return | Risk Level |
Qunat Tax Plan Direct Growth | 20.51% | 35.46% | 23.00% | Very High |
BOI AXA Small Cap Fund Direct Growth | 16.67% | 33.73% | – | Very High |
Parag Parikh Flexi Cap Fund Direct Growth | 12.82% | 23.22% | 18.71% | Very High |
Mirae Asset Equity Savings Fund Direct Growth | 7.00% | 11.99% | – | Moderate |
HDFC Credit Risk Debt Fund Direct Growth` | 4.42% | 8.34% | 7.69% | Moderate |
Edelweiss Government Securities Fund Direct Growth | 2.01% | 8.62% | 7.96% | Low to Moderate |
Nippon India Banking & PSU Debt Fund Direct Growth | 2.92% | 7.63% | 7.46% | Low to Moderate |
TATA Arbitrage Fund Direct Growth | 4.37% | 5.39% | – | Low |
Edelweiss Arbitrage Fund Direct Growth | 4.75% | 5.26% | 5.90% | Low |
HSBC Overnight Fund Direct Growth | 3.42% | – | – | Low |
** All the above-mentioned data is as on May 22, 2022
1. Qunat Tax Plan Direct Growth
This good is one of the best dividend paying mutual funds for investors who are looking for a fund which invests 100% of its money in equity instruments. More than 25% of the money of this fund is invested in the services sector, and around 13% is in the stocks of the financial sector companies.
2. BOI AXA Small Cap Fund Direct Growth
It is one of the equity-oriented Dividend Yield Mutual Funds and is suitable for investors looking for appreciation of their capital in the long term. The three main focus sectors of the fund are the financial sector, followed by the chemical and technology sector.
3. Parag Parikh Flexi Cap Fund Direct Growth
It is another one of the best dividend paying mutual funds, which has allocated a majority of its funds in equity instruments and only 7.4% and 0.3% in cash and debt instruments, respectively. More than 50% of the money of this mutual fund is invested in the financial and services sector.
4. Mirae Asset Equity Savings Fund Direct Growth
The fund has invested over 38% in equity instruments, around 25% in debt securities, and the remaining in cash and cash equivalents. Out of its equity allocation, the financial sector companies have received the majority of attention from this fund.
5. HDFC Credit Risk Debt Fund Direct Growth
As the name suggests, this fund has its maximum allocation of 93.4% in debt instruments and the remaining in cash and cash equivalents. This fund which ranks in the list of Best Dividend Yield Mutual Funds maintains no position in equity shares. In the debt segment, the funds favourites sectors are financials, construction, and capital goods.

6. Edelweiss Government Securities Fund Direct Growth
This is one of the best dividend paying mutual funds, which does not have any equity component as it has invested 99% of its money in debt instruments and the remaining 1% in cash and cash equivalents. The fund has invested 44% in the debt instruments in the financial sector and around 42% in sovereign securities.
7. Nippon India Banking & PSU Debt Fund Direct Growth
The fund has around 97% of its money invested in the debt securities of sectors like financials, energy, and insurance. The remaining 3% of its holding is in cash and cash equivalents.
8. TATA Arbitrage Fund Direct Growth
The fund maintains its majority holding in cash and cash equivalents, with over 73% of its money invested in the segment. The remaining allocation of around 23% exists in debt securities which include both financial sector instruments and sovereign bonds. The fund exercises arbitrage mainly via equity instruments of the financials, services, and technology sectors.
9. Edelweiss Arbitrage Fund Direct Growth
The fund has around 72% of its money invested in cash and cash equivalents and has been ranking among the best dividend paying mutual funds for some time now. And over 28% in debt instruments. The fund leverages arbitrage opportunities via equity-oriented securities belonging to the sectors like financials, services, and energy.
10. HSBC Overnight Fund Direct Growth
The fund has invested over 94% in cash and cash equivalents, and the remaining holding is in cash and cash equivalents. It is one of the highly-rated Dividend Yield Funds which invests in money-market instruments and cash equivalents.

Features of Dividend Yield Mutual Funds
Here are some of the key features of Dividend yield Mutual Funds:
- Dividend yield mutual funds invest a major part of the sum in dividend yielding shares, which implies that the companies pay an above-average dividend.
- As per the guidelines by SEBI, the schemes invest a minimum of 65% of the corpus in dividend yielding stocks.
- These funds are specifically known to invest in companies that distribute a large part of their profits among the investors.
- Dividend yielding companies have the option either reinvest the net profit to distribute that profit among the investors.
- The dividends can only be paid from the profits earned by a mutual fund from its holdings.
Taxation of Dividend Yield Mutual Funds in India
Dividends that are paid by equity funds are subjected to a Dividend Distribution Tax (DDT) of 10%. This tax is deducted at the time of payment of the dividend, which means that the dividend is tax-free in the hand of the investor. While the Dividend Distribution Tax on non-equity funds such as liquid debt funds and the money market is 25%.
Type of Fund | DDT Rate | Effective Rate (inclusive of CESS) |
Equity | 10% | 11.64% |
Debt | 25% | 29.12% |
Key Takeaways
- Dividend Yield Funds are mutual funds that invest a minimum of 65% of their money in dividend-paying securities.
- High Dividend Mutual Funds are suitable for those who are looking for an income flow via dividends.
- Dividend Yield Funds typically invest in fundamentally strong companies in order to provide a regular flow of dividends to their investors
Conclusion
Dividend Yield Mutual Funds are becoming increasingly popular amount investors who wish to enjoy a steady flow of income along with a good return on their investments. Above we have shared with you a list of Top Dividend Paying Mutual Funds which rank among the Highest Dividend Paying Mutual Funds In India.
FAQs
No, dividend payouts depend on the performance of the securities in which the fund has invested.
The dividend payout is calculated as a percentage of the face value of the Dividend Yield Funds.
Yes, you can invest in Dividend Yield Funds vis SIPs.
Yes, even with a low-risk appetite, you can invest in the Best Dividend Paying Mutual Funds of your choice. All you need to do is choose a Dividend Yield Funds which has its maximum allocation in debt instruments and cash equivalents.
Regular Dividend Yield Funds are those funds in which you invest with the help of an agent or distributor.
Also read about Mutual funds vs. Fixed Deposits on Investment Simplified.