Monthly Income Plans vs SWPs

You're earning well in Dubai. You've saved diligently. Now you want that money working for you in India while giving you a monthly cushion.

Someone told you about Monthly Income Plans. Your colleague swears by SWPs. Your banker pitches both. And you're sitting there wondering: what's the real difference? Which one won't bite me during tax season? Which one lets me sleep better at night?

Here's what we've learned working with hundreds of NRIs at Belong: most "monthly income" products aren't what they sound like. Some lock your money. Others surprise you with tax bills. And many don't work well when you factor in TDS, DTAA benefits, and repatriation rules.

This isn't just another comparison article. We'll show you exactly how MIPs and SWPs work for NRIs, break down the taxation for someone living in the UAE, and tell you when each option makes sense. By the end, you'll know which one fits your goals and how to set it up properly.

And if you're looking for truly tax-free monthly income in USD? Keep reading – we'll show you a better alternative at the end.

What Happens When NRIs Search for "Monthly Income"

Most NRIs want the same thing: predictable cash flow without touching their principal. Maybe it's to supplement your Dubai salary. Maybe it's to support family back home. Or perhaps you're planning to return to India soon and want to test the waters.

The financial services industry offers two main routes:

Monthly Income Plans (MIPs): Mutual fund schemes that invest mostly in debt with a splash of equity, aiming to pay regular dividends.

Systematic Withdrawal Plans (SWPs): A facility that lets you withdraw fixed amounts from any mutual fund investment at intervals you choose.

At first glance, both promise monthly income. But here's where it gets interesting – and where most articles stop short of telling you the whole truth.

What Monthly Income Plans Actually Are (And What They're Not)

Let's clear the biggest misconception first: MIPs don't guarantee monthly income.

Yes, the name says "Monthly Income Plan." But these are market-linked products. They can declare dividends when the fund performs well. They can skip dividends when it doesn't. There's no contractual promise.

According to SEBI guidelines, MIPs are classified as hybrid debt-oriented funds. They typically invest:

  • 70-90% in debt instruments (bonds, debentures, government securities)
  • 10-25% in equities (stocks for that extra alpha)

(Source)

The debt portion aims for stability. The equity slice tries to boost returns. Fund houses pay dividends from surplus income when available.

How MIP Dividends Work

When you invest in an MIP, you pick between two options:

Dividend Option: The fund pays out any surplus as dividends (monthly or quarterly) directly to your bank account.

Growth Option: Any profits stay invested, growing your Net Asset Value (NAV) through compounding.

For someone wanting regular income, the dividend option sounds perfect. But here's the catch that trips up most NRIs: dividends are paid at the fund house's discretion. If markets tumble, if the fund underperforms, if there's no surplus – no dividend gets declared that month.

We have seen this happen repeatedly in 2022-2023 when several popular MIPs reduced dividend frequency or skipped payouts as interest rates climbed and bond prices fell.

👉 Tip: Before choosing an MIP for "guaranteed" income, check its dividend payout history for the last 3-5 years. Consistent payout patterns matter more than promised returns.

MIP Returns: What to Realistically Expect

Historical data from Value Research shows that MIPs have delivered 7-10% annualized returns over 5-year periods. That's better than fixed deposits at 6-7%, but remember:

  • Returns aren't guaranteed
  • Dividends fluctuate
  • Market volatility affects NAV
  • Interest rate changes impact debt holdings

What Systematic Withdrawal Plans Really Give You

Now, SWPs are different beasts entirely.

An SWP isn't a product. It's a facility available on virtually any mutual fund scheme. You invest a lumpsum amount in a mutual fund, then instruct the fund house to redeem units worth ₹X every month (or quarter, or whatever frequency you choose).

Let's break this down with an example:

You invest ₹10 lakh in a mutual fund. The current NAV is ₹50 per unit, so you get 20,000 units. You set up an SWP of ₹10,000 monthly.

Month 1: Fund redeems 200 units (₹10,000 ÷ ₹50 NAV) = ₹10,000 in your account. Remaining units: 19,800.

Month 2: NAV rises to ₹52. Fund redeems 192.3 units (₹10,000 ÷ ₹52) = ₹10,000 in your account. Remaining units: 19,607.7.

Month 3: NAV drops to ₹48. Fund redeems 208.33 units (₹10,000 ÷ ₹48) = ₹10,000 in your account. Remaining units: 19,399.37.

See what's happening? You get the same ₹10,000 every month, but the number of units redeemed varies with NAV. The remaining units continue growing (or shrinking) based on market performance.

The Math That Makes SWPs Powerful

Here's where SWPs shine for long-term planning. Let's say your fund returns 10% annually and you withdraw 8% annually. Your corpus doesn't just survive – it grows.

Using an SWP calculator, if you invest ₹50 lakh and withdraw ₹35,000 monthly (8.4% annually) with 10% fund returns:

  • After 10 years: You've withdrawn ₹42 lakh, but your remaining corpus is ₹51.8 lakh
  • After 15 years: You've withdrawn ₹63 lakh, remaining corpus ₹59.4 lakh
  • After 20 years: You've withdrawn ₹84 lakh, remaining corpus ₹69.7 lakh

This is the power of keeping your withdrawal rate below your growth rate. Your corpus outlives you while funding your lifestyle.

👉 Tip: Target SWP withdrawal rates of 6-8% annually from hybrid or debt funds. This gives you cushion for market volatility while preserving capital long-term.

Which Mutual Funds Work Best for SWPs

Unlike MIPs (which are specific product categories), you can set up SWPs on:

  • Balanced Advantage Funds: Dynamic equity-debt allocation based on valuations
  • Multi-Asset Funds: Spread across equity, debt, and gold
  • Debt Funds: Corporate bond funds, dynamic bond funds
  • Hybrid Funds: Aggressive hybrid or conservative hybrid

NRIs can invest in all these categories through their NRE or NRO accounts, subject to scheme-specific restrictions.

The Six Core Differences That Matter for NRIs

Let's cut through the noise. Here's what actually separates MIPs from SWPs when you're living in Dubai and investing back home:

1. Income Predictability

MIP: Dividends depend on fund performance and fund house discretion. Could be ₹2,000 one quarter, ₹1,500 the next, zero the quarter after.

SWP: You decide the exact amount. ₹10,000 every month means ₹10,000 shows up every month, regardless of market mood.

For NRIs supporting family or covering EMIs back home, this predictability is invaluable. You can't tell your parents "sorry, no money this month because my MIP didn't declare dividends."

2. Control and Flexibility

MIP: You're at the mercy of the fund house. Want to increase income? Can't. Want to pause for a few months? Not possible. Want to change frequency? Tough luck.

SWP: Total control. Increase withdrawal amount, decrease it, pause for a few months, change from monthly to quarterly, stop entirely – all at your discretion.

Living abroad means life throws curveballs. Maybe you get a bonus and don't need withdrawals for six months. Maybe you have an emergency and need to double the withdrawal temporarily. SWPs let you adapt. MIPs don't.

3. Taxation Structure: This Is Huge

This is where SWPs pull dramatically ahead for NRIs. Let's break down the math.

MIP Dividends (The Old Way):

Before April 2020, MIP dividends were tax-free for investors, but fund houses paid Dividend Distribution Tax (DDT) of ~29%. Since April 2020, dividends are added to your income and taxed at your slab rate.

For NRIs:

  • TDS of 20% (plus surcharge and cess) is deducted on dividend income
  • You still need to file ITR and pay additional tax if your slab rate is higher
  • No indexation benefits
  • The entire dividend is taxed as "income from other sources"

If your MIP pays ₹50,000 dividend in a year:

  • TDS deducted: ₹10,000 immediately
  • Balance to you: ₹40,000
  • If you fall in 30% slab (which many UAE-based NRIs do with their India income), you owe another ₹5,000 at tax filing
  • Effective tax: ₹15,000 on ₹50,000 = 30%

SWP (The Smarter Way):

With SWPs, taxation depends on capital gains – and here's the beautiful part: you're only taxed on the gains portion of your withdrawal, not the entire amount.

Let us explain with an example. You invested ₹10 lakh in a debt fund. After 2 years, it's worth ₹11.5 lakh. You withdraw ₹50,000.

Your withdrawal has two components:

  • Return of capital: (₹10L ÷ ₹11.5L) × ₹50,000 = ₹43,478 (not taxed – it's your own money!)
  • Capital gain: ₹50,000 - ₹43,478 = ₹6,522 (this is taxed)

For NRI taxation on mutual funds:

If debt fund taxed at slab rate up to 30% irrespective of holding period

If equity fund held >12 months:

  • LTCG: 12.5% on gains exceeding ₹1.25 lakh/year
  • STCG: 20% on gains if held \<12 months

Compare:

  • MIP dividend of ₹50,000: Tax = ₹15,000 (30% slab)
  • SWP from debt fund: Tax = ₹815 on gains component
  • Tax saving: ₹14,185 per year on this example

Scale this over 10-20 years, and SWPs save you lakhs in taxes.

👉 Tip: If you're in the UAE with no India-sourced income, structure SWPs to keep your total India income under ₹12 lakh/year to utilize the new tax regime's basic exemption effectively.

4. TDS Complications for NRIs

TDS rules for NRIs differ significantly:

On MIP Dividends:

  • TDS: 20% (plus applicable surcharge and cess)
  • Deducted immediately on payout
  • Requires annual ITR filing to claim refunds if any

On SWP Redemptions:

  • For equity funds: 20% TDS on STCG, 12.5% on LTCG (only on gains, not entire withdrawal)
  • For debt funds: Slab rate Upto 30% irrespective of holding period
  • Can submit Form 15CA/15CB if repatriating funds

The difference? With SWPs, TDS is only on the gains component, and you can use DTAA benefits more effectively.

5. Principal Protection vs. Erosion Risk

MIP: Your principal stays invested. Dividends come from income earned, not by selling units. Principal value fluctuates with NAV but stays intact in unit terms.

SWP: You're systematically liquidating units. If your withdrawal rate exceeds your fund's return rate, your corpus erodes over time.

This distinction matters. If you invest ₹25 lakh in an MIP, those 25 lakhs worth of units remain (assuming you pick dividend option). The NAV might be ₹30 lakh or ₹23 lakh depending on markets, but you're not selling units for income.

With an SWP on ₹25 lakh, withdrawing ₹25,000/month means you're selling units worth ₹3 lakh annually. If your fund only returns 8% (₹2 lakh), your corpus shrinks by ₹1 lakh/year.

That said, if you manage SWP withdrawal rates conservatively (6-8% annually) and pick decent funds (8-12% returns), your corpus survives – and often grows.

6. Repatriation Rules for NRIs

This is critical if you're eventually moving back to India or sending money to another country.

Both MIPs and SWPs can be done through NRE or NRO accounts:

NRE Account:

  • Fully repatriable
  • MIP dividends and SWP proceeds can be sent abroad freely
  • No tax on interest earned (but MF income is taxable)

NRO Account:

  • Repatriation capped at USD 1 million per financial year
  • Requires filing Form 15CA and 15CB
  • Interest is taxable

For most UAE-based NRIs planning to return to India, NRE-based investments make more sense for full repatriation flexibility.

When MIPs Actually Make Sense for NRIs

I won't trash MIPs entirely. They have their place. Here's when they could work:

Scenario 1: You Want Zero Decision-Making

Some people genuinely don't want to think about withdrawals. They want the fund house to decide based on performance and just receive whatever comes. If that's you, and you're okay with variable income, MIPs work.

Scenario 2: You're Using Them as Parking Funds

Short-term parking (6-12 months) before deploying into longer-term investments. Here, you're not relying on monthly income but just want better-than-savings returns with some liquidity.

Scenario 3: You Understand This Is Hybrid Investing, Not Monthly Income

If you go into MIPs knowing they're debt-heavy hybrid funds that might pay dividends but offer better tax efficiency than pure debt funds (for the equity portion) and you're fine with that – then sure, they work as part of a broader portfolio.

But as a reliable monthly income source for NRIs? SWPs are almost always better.

Real-World Scenario: Rajesh in Dubai

Let us share a real case (name changed). Rajesh, 42, works in Dubai as an operations manager. He saved ₹40 lakh over 10 years and wanted ₹30,000 monthly to support his parents in Pune.

Option 1: MIP

He could've invested ₹40 lakh in a conservative MIP targeting 7-8% returns. At 7% with monthly dividends, he'd expect roughly ₹23,000/month (₹2.8 lakh annually).

But:

  • Dividends weren't guaranteed. Some months ₹25K, some ₹20K, occasionally zero
  • TDS of 20% meant he received only ₹18,400 after tax deduction
  • He still needed to file ITR and potentially pay more tax
  • No flexibility to adjust amount if parents needed more

Option 2: SWP

He invested ₹40 lakh in a balanced advantage fund through his NRE account and set up SWP of ₹30,000/month.

Results after 3 years:

  • Received exactly ₹30,000 every single month (₹10.8 lakh withdrawn total)
  • Fund returned 10.2% annually, so corpus grew to ₹44.5 lakh
  • Only paid LTCG tax on the gains component of withdrawals (roughly ₹22,000 total tax over 3 years vs. ₹65,000 with MIP dividends)
  • Full flexibility: increased to ₹35K for 3 months when his father had surgery, then reduced back to ₹30K

This is what works in the real world for most NRIs.

👉 Tip: If you're setting up SWPs for family support back home, use auto-debit from your fund to their bank account. Most AMCs allow nominee account credits, simplifying transfers.

How to Set Up an SWP as an NRI (Step-by-Step)

Let's get practical. Here's exactly how to set up an SWP if you're in the UAE:

Step 1: Check Your NRI Account Type

You need either an NRE or NRO savings account. If you're investing fresh foreign income, use NRE for full repatriation. If it's India-earned income, use NRO.

Step 2: Complete KYC

As an NRI, you need:

  • In-person verification (IPV) or video KYC
  • PAN card
  • Passport copy
  • Overseas address proof (Emirates ID, utility bill)
  • Visa/work permit copy

Most mutual fund platforms like Zerodha, Groww, or direct AMC websites allow NRI KYC.

Step 3: Choose Your Mutual Fund

For SWPs, choose funds based on your risk tolerance:

Conservative (low risk): Debt funds, liquid funds, short-duration funds 

Moderate (medium risk): Hybrid funds, balanced advantage funds 

Aggressive (higher risk): Large-cap equity funds, flexi-cap funds

Our research at Belong suggests hybrid funds and balanced advantage funds work best for SWPs – they balance growth with stability.

Also Read -Best Mutual Funds for NRIs to Invest in India

Step 4: Invest Lumpsum

SWPs need an existing corpus. Invest your lumpsum amount (minimum varies by fund, usually ₹5,000 to ₹10,000).

Step 5: Set Up SWP Instructions

Log into your mutual fund account or AMC website. Navigate to "SWP" or "Withdrawal Plan" section. Fill in:

  • Withdrawal amount: (be conservative – aim for 6-8% of corpus annually)
  • Frequency: Monthly, quarterly, or half-yearly
  • Start date: Ensure it's after any lock-in or exit load period
  • Bank account: Where you want proceeds credited

Step 6: Monitor and Adjust

Review every 6 months:

  • Is your corpus growing or shrinking?
  • Has your fund performance changed?
  • Do you need to adjust withdrawal amount?

The Tax Filing Headaches (And How to Avoid Them)

Most NRIs mess up here. You're living in Dubai, earning tax-free income there, but your India investments trigger tax obligations back home.

What You Must File

If your total India-sourced income (including MF redemptions, FD interest, rental income) exceeds ₹4 lakh, you must file ITR with NRI status. For the old regime, the basic exemption is ₹2.5 lakh.

For MIP Dividends:

  • Show under "Income from Other Sources"
  • Claim TDS already deducted
  • Pay balance tax if your slab rate exceeds 20%

For SWP Redemptions:

  • Calculate capital gains separately for each withdrawal
  • Use Schedule 112A or Schedule 111A depending on fund type
  • Claim TDS already deducted (if any)

The DTAA Advantage for UAE NRIs

India and UAE have a Double Taxation Avoidance Agreement. This means:

  • If you pay tax in India on MF income, you don't pay again in UAE (though UAE currently has no personal income tax)
  • You can claim lower TDS rates by submitting a Tax Residency Certificate (TRC) from UAE

To get a TRC:

  1. Visit Federal Tax Authority (FTA) website in UAE
  2. Apply for Tax Residency Certificate
  3. Get it attested by Indian embassy
  4. Submit to your bank and fund house in India

This can reduce TDS from 20% to 10% in many cases (for debt funds), depending on DTAA provisions.

👉 Tip: File Form 10F along with TRC with your fund house before redemptions to get the benefit immediately, not just as refund later.

Also Read -How DTAA Helps NRIs Avoid Double Taxation

The GIFT City Alternative NRIs Are Missing

Here's what most financial advisors won't tell you: both MIPs and SWPs come with baggage for NRIs:

  • Rupee depreciation risk
  • TDS complications
  • ITR filing headaches
  • DTAA paperwork
  • Repatriation caps (for NRO)

At Belong, we've seen hundreds of NRIs struggle with these exact issues. That's why we focus on GIFT City investment options.

GIFT City Fixed Deposits for NRIs:

  • USD-denominated (no rupee risk)
  • 4.5-6%% returns in USD
  • Completely tax-free under IFSC benefits
  • No TDS
  • No ITR filing needed for FD income
  • Full repatriation to any country
  • Digital account opening from UAE

Compare:

  • MIP: 7-9% rupee returns, 20-30% tax, rupee depreciation risk, ITR filing
  • SWP: 8-12% rupee returns, 12.5-20% tax on gains, rupee risk, ITR filing
  • GIFT City FD: 5.0% USD returns, zero tax, zero currency risk, zero filing

When you factor in typical 2-3% annual rupee depreciation, taxes, and hassle, GIFT City often comes out ahead for capital preservation and stress-free income.

We've helped over 5,000 UAE-based NRIs move to GIFT City FDs, and the feedback is unanimous: "Why didn't anyone tell us about this earlier?"

Common Mistakes NRIs Make (And How to Avoid Them)

From our experience onboarding thousands of NRIs, here are the top screw-ups:

Mistake 1: Treating MIPs Like Bank FDs

MIPs are mutual funds. They carry market risk. NAV fluctuates. Dividends aren't guaranteed. Expecting fixed monthly income from them is setting yourself up for disappointment.

Fix: If you need guaranteed income, stick to bank FDs or GIFT City FDs. Use MIPs only if you understand they're hybrid funds.

Mistake 2: Setting SWP Rates Too High

Withdrawing 15-20% annually from an SWP because "I need the money" means your corpus dies fast, especially during market downturns.

Fix: Aim for 6-8% withdrawal rates. If you need more income, invest a larger corpus, not withdraw a higher percentage.

Mistake 3: Not Considering Currency Risk

Your MIP or SWP earns in rupees. You live in Dubai, earn in AED, think in USD. The rupee has depreciated 2-3% annually against the dollar for decades.

A "10% return" in rupee terms could be just 7% in dollar terms after currency movement.

Fix: Diversify. Keep some investments in USD-denominated assets (GIFT City, international mutual funds). Don't put everything in rupee assets.

Mistake 4: Ignoring Exit Loads

Many MIPs and mutual funds charge 1% exit load if you redeem within 1-2 years. For SWPs, this means you lose 1% on every withdrawal during that period.

Fix: Start SWPs only after exit load period is over. Or invest in funds with nil exit loads.

Mistake 5: Forgetting FEMA Compliance

NRIs must follow FEMA guidelines for investments. Certain funds prohibit NRI investments (especially in US/Canada due to FATCA). Investing in restricted funds gets your application rejected or redemptions blocked.

Fix: Use NRI-friendly platforms that filter out restricted funds automatically. Or check scheme documents before investing.

Which Should You Choose: MIP or SWP?

Let's make this dead simple.

Choose MIP if:

  • You want zero decision-making on withdrawals
  • You're okay with variable monthly income
  • You're investing for growth primarily, income secondarily
  • You're fine with 20% TDS and ITR filing for dividends

Choose SWP if:

  • You need predictable monthly income (fixed amount)
  • You want control and flexibility over withdrawals
  • You're tax-conscious and want to optimize tax outgo
  • You need the ability to pause/adjust withdrawals
  • You're investing long-term (10+ years) and managing withdrawal rate carefully

For 90% of NRIs, SWPs are the better choice. They're tax-efficient, flexible, and predictable.

For the other 10% who value capital preservation and zero tax above all, GIFT City FDs might be the smartest play.

The Belong Approach: Helping NRIs Simplify Investing

Look, we get it. You didn't leave India and build a career abroad to spend weekends reading IT Act sections and calculating capital gains.

At Belong, our mission is simple: make India investing easy for global Indians, especially those in the UAE. We've built:

We also run an active WhatsApp community of 5,000+ UAE-based NRIs where you can ask questions, share experiences, and get quick answers from peers and our expert team. No sales pitch. Just genuine help.

Whether you choose MIP, SWP, or GIFT City, we're here to help you make informed decisions.

Final Thoughts: Keep It Simple, Keep It Smart

If you've read this far, you're already ahead of 90% of NRIs who make investment decisions based on WhatsApp forwards or bank relationship manager pitches.

Here's the bottom line:

MIPs promise monthly income but don't guarantee it. They're decent as part of a diversified portfolio but shouldn't be your sole income source.

SWPs give you control, predictability, and tax efficiency. For most NRIs, they're the smarter choice for creating monthly cash flow.

GIFT City FDs give you simplicity, tax benefits, and currency stability. If you value peace of mind over chasing extra 2-3% returns, they're unbeatable.

Your choice depends on your goals, risk tolerance, and life stage. But whatever you choose, make sure you understand the taxation, repatriation, and sustainability angles before committing your hard-earned money.

Need help deciding what's right for you? Download the Belong app or join our WhatsApp community. We're here to help you make smarter financial decisions, without the jargon, without the hard sell.

Because at the end of the day, you didn't work this hard to let poor investment choices eat into your wealth.

Sources & References:

SEBI Guidelines on Mutual Fund Categories

Value Research - MIP Historical Returns

Groww SWP Calculator

Bajaj Finserv - NRI Mutual Fund Taxation (2025)

Income Tax Act - Capital Gains Taxation

FEMA Guidelines

India-UAE DTAA