Get the Tata Capital App to apply for Loans & manage your account. Download Now

Blogs

SUPPORT

Menu  
 
Apply Now
Apply Now

Tata Capital > Blog > Wealth Services > FD vs. mutual funds – Which is better for NRIs?

Wealth Services

FD vs. mutual funds – Which is better for NRIs?

FD vs. mutual funds – Which is better for NRIs?

Managing and growing money in India can be beneficial and convenient for Non-Resident Indians (NRIs). The two most popular investment options available for NRIs in India are Fixed deposits (FDs) and mutual funds. They help with savings and wealth creation. However, before choosing between the two, it is essential to understand how they compare in terms of returns, risks, taxation, and flexibility. 

This article compares FD vs. mutual funds to help NRIs make an informed investment decision.

Types of fixed deposits for NRIs

NRI fixed deposit​s are term deposits designed for Indians residing abroad. You can open an NRI fixed deposit through:

Non-Resident External (NRE) Account FDs

The funds in this FD account are deposited from foreign income. You can repatriate the entire principal and interest without paying any taxes. 

Non-Resident Ordinary (NRO) Account FDs

The account allows management of income earned in India. The interest earned is taxable. 

Foreign Currency Non-Resident (FCNR) Deposits

The account is maintained in foreign currencies, including USD, EUR, GBP, etc. It protects the NRI against exchange rate fluctuations. 

FDs are considered a safe, stable investment option with guaranteed returns. 

Also, read – Fair market value – Meaning and how to calculate it

What are mutual funds for NRIs?

Mutual funds pool money from several investors and allocate the funds into equities, debt instruments, or hybrid funds. NRIs can invest in Indian mutual funds through NRE or NRO accounts. NRIs can choose from the following types of mutual funds based on risk appetite and financial goals:

Equity mutual funds

These funds aim for long-term capital appreciation but involve high market risk.

Debt mutual funds

These mutual funds invest in fixed-income securities with relatively lower risk.

Hybrid mutual funds

These funds achieve a balance between growth and stability by investing in both equity and debt. 

Mutual funds are an ideal investment option for wealth creation, long-term planning, and diversification. 

Also, read – How private credit became the new gold dust for investors?

FD vs. mutual funds for NRIs

Fixed deposits are different from mutual funds in the following ways:

  1. Returns

Fixed deposits: The returns on an FD are fixed at the time of investment. Currently, NRE and FCNR fixed deposit rates for NRIs range from 6% to 7.5%, depending on the bank and the tenure. These returns are guaranteed and unaffected by market movements.

  1. Mutual funds: The returns on mutual funds vary depending on market performance. Equity funds may generate significantly higher returns, around 10% to 12% or more over long horizons, while debt funds offer moderate but stable returns. The returns are market-linked and not guaranteed., but the potential for long-term wealth creation is higher than that of FDs. Risk

Fixed deposits: FDs carry minimal risk. NRE and FCNR deposits also protect your foreign earnings, making them one of the safest investment instruments. The only risk with FDs is interest rate fluctuation at maturity.

Mutual funds: These instruments are market-linked and carry market risks. Equity funds can fluctuate significantly, while debt funds are relatively more stable.

  1. Liquidity

Fixed deposits: FDs usually have a lock-in period of 1 to 10 years. While premature withdrawal is allowed, penalty charges apply. FCNR deposits must also be at least one year old to qualify for interest payment.

Mutual funds: These offer high liquidity. You can redeem units anytime, and the money is credited into your bank account within a few working days. An Equity-Linked Savings Scheme (ELSS) is an exception with a lock-in period of 3 years.

  1. Taxation

Fixed deposits: NRE and FCNR FD interest is tax-free in India. NRO FD interest is taxable at 30% TDS plus cess.

Mutual funds: NRI mutual fund taxation depends on the type of fund and holding period. Equity mutual funds attract Short-Term Capital Gains (STCG) tax at 20% (for units held for less than 1 year) and Long-Term Capital Gains (LTCG) tax at 12.5% (for redemptions after the 2024 tax rule change) after an exemption of Rs. 1.25 lakh. For debt mutual funds, the tax rate depends on the investor’s income tax slab and can go up to 30%. 

  1. Repatriation rules

Fixed deposits: NRE and FCNR FDs allow full repatriation of principal and interest. NRO FDs allow repatriation of interest without restrictions, but principal is restricted to USD 1 million per financial year.

Mutual funds: Investments made through NRE accounts are fully repatriable. However, investments via NRO accounts allow repatriation based on RBI limits (up to USD 1 million per financial year) and documentation.

  1. Investment horizon

Fixed deposits: FDs are ideal for short to medium-term goals, such as 1 to 5 years.

Mutual funds: Mutual funds, especially equity funds, are ideal for long-term wealth creation, spanning over 5 years. 

Also, read – Hit the jackpot with a wealth creation plan

Which is better for NRIs: Fixed deposits or mutual funds?

There is no single best option. The winner of the FD vs. mutual fund battle depends on your financial goals. FDs are ideal if you want safety, stable returns, and tax benefits, especially NRE/FCNR FDs. Mutual funds are better for long-term wealth creation and overcoming inflation. Many NRIs prefer a mix of both for balanced growth and stability.

Build Your Wealth with Expert Guidance from Tata Capital!

Apply now
Popular Searches
aif full form pms vs mutual fund bnpl meaning debt investment options debt syndication unlisted equity shares meaning gold etf vs gold bond plot plus construction loan

FAQs

Can NRIs open a fixed deposit in India?

Yes. NRIs can open fixed deposits in India through NRE, NRO, and FCNR accounts. These deposits can be maintained in Indian currency or select foreign currencies. These fixed deposits offer competitive interest rates and varying tax benefits.

Can NRIs invest in mutual funds?

 

Yes. NRIs can invest in Indian mutual funds using NRE or NRO bank accounts. You can choose from equity, debt, hybrid, or tax-saving funds. The repatriation rules depend on whether the investment is made through an NRE or NRO account.

Disclaimer

Most Viewed Blogs

Trending Blogs

Calculator

Personal Loan EMI Calculator

Personal Loan EMI Calculator
Home Loan EMI Calculator

Home Loan EMI Calculator
Business Loan EMI Calculator

Business Loan EMI Calculator
Used Car Loan EMI Calculator

Used Car Loan EMI Calculator
Two Wheeler Loan EMI Calculator

Two Wheeler Loan EMI Calculator
Loan Against Securities Calculator

Loan Against Securities Calculator
Loan Against Property Calculator

Loan Against Property Calculator
More Tools
Our Subsidiaries
Our Private Equity Funds

Useful Links and Resources

Policies, Codes & Other Documents

Tata Capital Solutions & Services

Uh oh, something went wrong

Please try again later.

Most Important Terms & Conditions - Home Loans

Download in your preferred language

Download