Volatility in Wall Street has increased due to a rise in macroeconomic uncertainties. The debate in Congress over an increase in the debt ceiling to prevent the country from going into a possible default, the collapse of important regional banks and still higher-than-expected inflation continue to dent investors’ sentiment.

U.S. treasury secretary Janet Yellen, in her repeated letters to Congress, raised concerns that the world’s biggest economy could run out of cash and may not be able to meet its obligations, unless the debt ceiling is raised by Jun 1. This means the government will fail to pay its dues, cut back spending and, most importantly, face severe financial market volatility. To address this situation, the discussion continues in Congress and it is expected that both parties will agree as soon the President arrives home from the G7 summit.

The sudden failures of Silicon Valley Bank, Signature Bank, and the takeover of Credit Suisse by European rival UBS, and First Republic Bank by JPMorgan Chase have taken Wall Street by surprise. The collapse of First Republic Bank is the second-biggest baking failure in the history of U.S. banking. This raised questions within the investor community about whether the Federal Reserve has overstepped its aggressive rate hike stances to fight inflation.

Domestic inflation for the month of April rose 4.9% year over year, still considerably higher than the Fed’s 2% target. Major economic readings like retail sales and manufacturing PMI have shown stress in the recent months. The only exception is the labor market, which has remained resilient and added over 1 million jobs in the past three months. However, such strength in the labor market raised concerns that the Fed may continue to hike rates, something that doesn’t bode well for the economy vis-à-vis the stock market.

By the way, inflation remains a worry for most of the countries around the world mostly due to geopolitical tensions, which continue to create energy crisis and supply-chain challenges. Amid such a gloomy scenario, investors thus should look to diversify their portfolios and earn a regular income by choosing to invest in the below-mentioned dividend-paying mutual funds.

Mutual funds, in general, reduce transaction costs and diversify portfolios without an array of commission charges that are mostly associated with stock purchases (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

We have, thus, selected three mutual funds that have a promising dividend yield, have given impressive 3-year and 5-year annualized returns, boast a Zacks Mutual Fund Rank #1 (Strong Buy), offer a minimum initial investment within $5,000 and carry a low expense ratio as compared to its category average.

BNY Mellon Global Real Return Fund (DRRIX Quick QuoteDRRIX - Free Report) invests most of its net assets in global equities, bonds and cash, and other asset classes like real estate, commodities, currencies, and alternative or non-traditional asset classes and strategies through derivative instruments. DRRIX advisors use an actively managed multi-asset strategy to produce real returns with less volatility compared to major equity markets over a complete market cycle, which is typically a period of five years.

Aron Pataki has been the lead manager of DRRIX since Dec 14, 2015, and most of the fund’s holdings were in companies like Shell (2.88%), Conocophillips (2.58%) and Ishares Gold Trust (2.18%) as of Jan 31, 2023.

DRRIX’s dividend yield is 9.0%. The fund’s 3-year and 5-year annualized returns are 4.5% and 4.1%, respectively. The annual expense ratio of 0.88% is lower than the category average of 1.29%. DRRIX has a Zacks Mutual Fund Rank #1. 

To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

Shelton Equity Income Fund (EQTIX Quick QuoteEQTIX - Free Report) invests most of its assets, along with borrowings, if any, in domestic equity securities of companies that pay out a relatively high level of dividend income within the industry. EQTIX advisors generally invest in common stocks of large and medium capitalization U.S. companies.

Stephen C. Rogers has been the lead manager of EQTIX since Dec 31, 2003, and most of the fund’s holdings were in companies like Microsoft (2.57%), Costco Wholesale (2.37%), and Procter and Gamble (2.36%) as of Nov 30, 2022.

EQTIX’s dividend yield is 7.5%. The fund’s 3-year and 5-year annualized returns are 12.3% and 7.1%, respectively. The annual expense ratio of 0.72% is almost in line with the category average of 1.11%. EQTIX has a Zacks Mutual Fund Rank #1.

Madison Covered Call & Equity Income Fund (MENYX Quick QuoteMENYX - Free Report) invests most of its assets in common stocks of companies that its fund advisors believe are selling at a reasonable price in relation to their long-term earnings growth rates. MENYX advisors prefer to invest in large-capitalization companies with similar economic features.

Ray DiBernardo has been the lead manager of MENYX since Oct 30, 2009, and most of the fund’s holdings are in companies like Fiserv (3.41%), Las Vegas Sands (3.39%), and Transocean (3.33%) as of Jan 1, 2023.

MENYX’s dividend yield is 6.3%. The fund’s 3-year and 5-year annualized returns are 18.2% and 10.1%, respectively. The annual expense ratio of 1.01% is almost in line with the category average of 1.11%. MENYX has a Zacks Mutual Fund Rank #1.

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