Non-resident diaspora with an Indian passport tends to look for certain options that attract a steady flow of income. However, the Reserve Bank of India (RBI) has put some restrictions in place, forbidding the non-residents to invest in the government securities and bonds.

But still, they have a number of alternatives to invest and make money through various financial institutions in India. One of them is Dividend Mutual Funds.

Dividend Mutual Funds
These funds define your investment in the company, which pays dividends. These are the profits that the company shares with the stock shareholders.
It is an excellent source of income. Besides, the NRIs can exaggerate their investment by buying more shares of the mutual fund. In short, it is a great investment alternative that attracts steady and reliable income from their mutual fund investment.

These investment opportunities are good for the retired investors, which consistently generates dividend with less risk.

Types

• Dividend Yielding Mutual (Equity) Funds

The company invests mainly in equity stocks of a company. As per guidelines of SEBI, the equity mutual fund scheme must put at least 65% of the scheme’s assets in equities or related instruments. Its motto is to thrive for increasing capital over a medium to long term.  

• Dividend Yielding Mutual (Debt) Funds

In this kind, a mutual fund scheme parks investment in fixed income instruments like government or corporate bonds, debt securities and money market instruments. It is the best investment alternative for the NRIs or any other one who intends to earn steady income without encountering a huge risk. Simply put, these investments attract the fixed income right from the time of the investment. Apart from that, they significantly come with unique tax benefits.

Advantages

• They are stock mutual funds that let you invest in the company, which pays dividends out of their profit margin.
• They offer an alternative to generate income.
• You can multiply that share of income by reinvesting that income in more mutual funds.
• They steadily and reliably inflow income into your account. 
• This alternative is best for those who are retired since they trigger income perpetually, even upon selling it.

Disadvantages

• The company with a very high dividend indicates that the company does not have enough opportunity to expand. 

So, always check the history of its dividend declaration before making an investment.

• These funds more often fail to perform in the bullish market.
• The tax implications with dividend mutual funds often make it difficult to invest in.
• The investment exceeding INR 10 lakh in a year is worth 10% chargeable at the hands of individuals, HUF, partnership firms or private firm. 

How to Invest

• Contact a mutual fund agent or invest directly.
• Check if the investment is done through the registered distributor of the Association of Mutual Funds in India (AMFI).
• The registered distributor should have the AMFI Registration Number (ARN).
• Direct investment can maximize the returns, as it requires no commission to be paid.
• Apart from visiting the mutual fund branch, the NRIs can deposit form through the website for those who provide.
• Check the history or track of the company.

Parameters to Invest

1. Nature of scheme (If it aims at creating capital for growth or providing regular income in an indicative time)
2. Objective of investment
3. Level of risk, as Low, Moderately Low, Moderate, Moderately High and High
4. Label of the dividend mutual fund investment

How It Works?
The financial institutions invest in the stocks of companies upon tracing their capability and profitability. Those companies generate high profits, which enable them to distribute dividends. This is how such companies are targeted for dividend mutual funds that have a proven track record.

In the case of a dividend yield fund, the returns that you’re going to receive depend on the declaration of profits by the underlying company. Therefore, the NRI investors directly receive dividends from the fund manager if he chooses this option.

Subsequently, the financial institution sends it to the uniholders within 30 days of the declaration of the dividend. If the institution fails to do so within a stipulated time, it itself compensates by paying interest as per regulations of SEBI. Currently, around 15% is slapped as an interest for being delayed in dispatching the dividend.

End-Notes:

1. NRIs can exaggerate their investment