Can Mutual Funds Give Monthly Income? (Expert Advice)

Priya, a 42-year-old marketing director in Dubai, called us last month with a question we hear weekly.

She'd saved AED 500,000 over eight years and wanted ₹50,000 landing in her parents' bank account every month.

"Can mutual funds actually do this, or is it just marketing?"

The short answer: yes. But not the way most people think. Mutual funds don't pay you a "salary."

There's no guaranteed monthly cheque like FD interest. But there are structured ways to create reliable monthly cash flow.

At Belong, we walk NRIs through this daily. This guide covers every method, the math, tax traps to avoid, and which approach works best for NRIs.

Three Ways Mutual Funds Generate Monthly Income

There's no single "monthly income mutual fund." There are three distinct mechanisms.

Systematic Withdrawal Plan (SWP) is the most reliable.

You invest a lump sum, then instruct the fund to redeem a fixed amount every month into your bank account. The rest stays invested and keeps growing.

IDCW (Income Distribution cum Capital Withdrawal) is the old "dividend option."

The fund distributes income when the fund manager chooses. It's not guaranteed, not fixed, and not predictable.

Monthly Income Plans (MIPs) are hybrid funds investing 75% to 90% in debt and the rest in equity.

They aim to provide regular payouts but cannot guarantee them. SEBI actually asked fund houses to stop using the name "Monthly Income Plans" because it was misleading.

👉 Tip: If you need a predictable amount every month, SWP is the only mechanism that gives you control. IDCW and MIPs are unpredictable.

How SWP Actually Works: Real Numbers

Say you invest ₹50 lakh in a balanced mutual fund. Balanced funds have historically delivered 9% to 11% over 5-year periods (AMFI data).

You set up a monthly SWP of ₹30,000. That's ₹3.6 lakh annually, roughly 7.2% of your corpus.

Since the fund grows at ~10% and you withdraw ~7.2%, the remaining corpus still grows. After 10 years, you'd have withdrawn ₹36 lakh, and your remaining investment could be worth over ₹55 lakh. Monthly income and capital growth.

Source: Calculations based on AMFI historical balanced fund data.

👉 Tip: The golden rule: never withdraw more than 6% to 8% of your corpus annually. Go beyond that, and you're eating into capital.

Why SWP Beats the "Dividend" Option for NRIs

SEBI renamed dividends to IDCW in 2021 for good reason.

Every IDCW payout reduces your fund's NAV by the exact amount distributed. It's your own money returning to you, not "extra" income.

Three problems with IDCW for NRIs. First, timing is unpredictable. Some months you get nothing. Second, the full payout is taxed at your slab rate, which is 30% for most NRIs.

With SWP from equity funds, only gains above ₹1.25 lakh annually attract 12.5% LTCG tax. Third, fund houses deduct TDS on IDCW for NRIs, creating refund-chasing paperwork during ITR filing.

SWP gives the same cash flow with significantly better tax efficiency.

Best Fund Types for Monthly Income

Conservative hybrid funds allocate 75% to 90% in debt, rest in equity. They've delivered 9% to 10% over five years. Low volatility means smooth SWP withdrawals. Good for NRIs supporting family in India.

Balanced advantage funds dynamically shift between equity and debt. Returns of 10% to 12% over five-year periods with automatic rebalancing. Multi-asset funds work similarly.

Large-cap equity funds offer higher growth (12% to 15% historically) but more volatility. SWP works here only with a 7+ year horizon and tolerance for short-term NAV dips. Explore options.

Debt funds offer stability but post-2023 tax changes mean gains are taxed at slab rates. A 7% return nets just ~4.9% after 30% tax. Compare against tax-free NRE FDs before choosing.

👉 Tip: For steady monthly income with minimal risk, a conservative hybrid fund with 6% to 7% annual SWP is the closest thing to a "mutual fund salary."

The NRI Tax Angle Most Blogs Skip

SWP from equity funds (held over 1 year): Only the gains portion is taxed. LTCG above ₹1.25 lakh at 12.5%. STCG at 20%. Source: Income Tax Act, post-July 2024 budget.

SWP from debt funds: All gains taxed at slab rate (30% for most NRIs). No indexation since 2023.

The GIFT City edge:GIFT City mutual funds under Section 10(4D) are exempt from Indian capital gains tax. For UAE NRIs with no local capital gains tax, SWP from GIFT City funds means completely tax-free monthly income. The India-UAE DTAA provides additional protection. Explore through Belong's GIFT City tools.

How Much Corpus for ₹50,000 Monthly?

Don't have the corpus yet? SIP investing builds it. ₹30,000 monthly SIP at 12% CAGR grows to roughly ₹75 lakh in 10 years. Build with SIP first, then switch to SWP. Use Belong's mutual fund tools to model scenarios.

USD FDs as a Monthly Income Alternative

For NRIs earning in dirhams who want zero currency risk, GIFT City USD FDs are worth considering.

Principal stays in USD. Interest is tax-free in India. No rupee depreciation eating returns. Compare rates with our NRI FD rates tool and track markets via GIFT Nifty.

A smart combo: park a portion in USD FDs for guaranteed income, invest the rest in mutual funds through SWP for growth.

This balances safety with potential.

Mistakes NRIs Make With Monthly Income Funds

Withdrawing too aggressively. Taking 12% to 15% annually when the fund returns 10% depletes capital fast. Start at 5% to 6%.

Choosing IDCW over SWP. The old "dividend" mindset costs lakhs in unnecessary tax.

Ignoring inflation. ₹50,000 today feels like ₹30,000 in 10 years. Build a 5% annual step-up into your SWP plan. Check our guide on NRI investment mistakes to avoid.

Your Next Step

Mutual funds can absolutely give you monthly income. The mechanism is SWP, not dividends. Build corpus through SIP, choose the right fund, withdraw sustainably.

For UAE NRIs, GIFT City tax-free options combined with structured SWP give monthly cash flow with minimal tax drag.

Thousands of NRIs in our WhatsApp community are structuring monthly income plans right now. Join them. Download the Belong app to explore mutual funds, compare FD rates, and start building the income your family needs.

Disclaimer: Mutual fund investments are subject to market risks. Read all scheme-related documents carefully. Past performance is not indicative of future results. This article is for educational purposes only. Consult a qualified financial advisor before making investment decisions.