Dividend-yield funds have beaten flexi caps over the past decade. Should you invest in them?

dividend-yield funds returned an average of 19.22% and around 18%, and 16.5% annually over the past three, five and 10 years (as of 18 February), while flexi-cap funds returned 16.85% and 14%, and 14.75% on average over the same periods. A recent rally in stocks has narrowed the average one-year returns to about 14% for both categories.Financial advisers said a run-up in dividend-yielding stocks in 2025 has helped lift the overall returns of the category for the 3-, 5-, and 10-year periods.

However, this is not an indication of long-lasting outperformance. “I would not read too much into this,” said Suresh Sadagopan.

founder and managing director of Ladder7 Wealth Planners, a Mumbai-based fee-only investment adviser registered with the Securities and Exchange Board of India (Sebi).He said investors should look at other factors besides performance when deciding if a fund is suitable for them.Financial advisers said dividend-yield funds can do better in certain conditions, such as when there is a lull in the stock market, as in a large part of 2025. In such a situation, dividends provide a nearly assured return, and when markets are volatile, the stock prices of such companies typically fluctuate less than those that don’t pay dividends.When the covid-19 pandemic struck in 2020, the broad market Nifty 50 Index fell nearly 34% between 13 February and 3 April, while the Nifty Dividend Opportunities 50 Index, which holds only dividend-yielding companies, fell only 26%.“The stability is higher,” said Sadagopan.Pankaj Mathpal, founder of Optima Money, a Mumbai-based mutual fund distributor, said, “Investors who want less downside risk can consider these funds.”However, when the stock market is rising rapidly, dividend-yield