A client in Abu Dhabi called us last week with a familiar problem. She had AED 200,000 sitting idle in her UAE savings account earning barely 1%.
She needed the money accessible within six months but wanted better returns than a traditional savings account.
Our recommendation? Money market funds in India.
At Belong, we help NRIs discover investment options that balance safety, returns, and accessibility. Money market funds sit right in that sweet spot.
They delivered 6.5% to 8% returns in FY 2024-25, according to AMFI data, while keeping your money highly liquid. This article covers everything you need to know before parking your surplus cash in these funds.
What Are Money Market Funds?
Money market funds are debt mutual funds that invest in short-term, high-quality instruments. Think of them as a parking spot for your cash that earns better interest than a savings account.
These funds put your money into Treasury Bills (T-Bills) issued by the Government of India, Commercial Papers (CPs) from top-rated corporations, Certificates of Deposit (CDs) from banks, and Repurchase Agreements (Repos). All these instruments typically mature within one year.
SEBI regulates these funds strictly. Fund managers can only invest in instruments rated highly by credit agencies like CRISIL or ICRA. This keeps your capital relatively safe.
👉 Tip: Money market funds are ideal for parking surplus cash you might need within 3 to 12 months. They're not meant for long-term wealth building.
How Much Can You Earn?
Top-performing money market funds in India delivered between 7% and 8% annualized returns over the past year. Here's how some popular funds performed:
Fund Name | 1-Year Return | 3-Year CAGR | AUM (₹ Cr) |
|---|---|---|---|
Tata Money Market Fund | 7.4% | 7.85% | 38,808 |
HDFC Money Market Fund | 7.4% | 7.69% | 37,139 |
Aditya Birla SL Money Manager | 7.5% | 7.74% | 26,757 |
Source: Groww, December 2025
Compare this to UAE savings accounts offering 1-2% or even UAE bank FDs at 3-4%. The difference adds up quickly on larger amounts.
Money Market Funds vs Liquid Funds: What's the Difference?
This question comes up constantly in our WhatsApp community. Both are debt funds, but they serve slightly different purposes.
Liquid Funds invest in instruments maturing within 91 days. They offer instant redemption (up to ₹50,000) and slightly lower returns. Use them for emergency funds you might need within days.
Money Market Funds invest in instruments maturing up to one year. They offer marginally higher returns but slightly lower liquidity. Redemption typically takes 1-2 business days.
If your investment horizon is under three months, liquid funds make more sense. For three months to one year, money market funds usually deliver better returns.
👉 Tip: Many NRIs use a combination. Park emergency funds in liquid funds and surplus savings in money market funds.
Why NRIs Are Choosing Money Market Funds
We've seen increasing interest from NRIs for three main reasons.
Better returns than savings accounts. When you're earning 7-8% versus 1-2%, even short-term parking of ₹10 lakh means an extra ₹50,000-60,000 annually.
High liquidity. Unlike fixed deposits that lock your money for months or years, money market funds let you withdraw within 1-2 business days. No premature withdrawal penalties.
Low risk. These funds invest only in highly-rated, short-term instruments. The NAV (Net Asset Value) remains relatively stable. You won't see the wild swings of equity funds.
How to Invest as an NRI
The process is straightforward if you have the right accounts in place.
Step 1: Open an NRE or NRO Account
You need an NRE account to invest foreign earnings with full repatriation rights. Use an NRO account for income earned in India. Most NRIs prefer NRE accounts for money market fund investments.
Step 2: Complete KYC
Submit your PAN card, passport, overseas address proof, and photograph. SEBI now recognizes digital KYC, so you can complete this from anywhere. Check if your status shows "KYC Validated" on the KRA website.
Step 3: Ensure FATCA/CRS Compliance
If you're in the UAE, US, UK, or most other countries, you'll need to submit a FATCA (Foreign Account Tax Compliance Act) declaration. This is a one-time requirement.
Step 4: Select Your Fund
Use Belong's mutual fund explorer or platforms like Groww, Zerodha Coin, or INDmoney that accept NRI investments. Look for funds with low expense ratios (ideally under 0.35%) and consistent performance.
👉 Tip: US and Canada-based NRIs face restrictions from some fund houses. Check directly with the AMC before investing. GIFT City mutual funds offer an alternative with no such restrictions.
Tax Implications for NRIs
This is where most NRIs get confused. Here's the simple version.
How are gains taxed?
Money market funds fall under "specified mutual funds" as per the Finance Act 2024. For investments made after April 1, 2023, all gains are taxed at your income tax slab rate, regardless of holding period. There's no distinction between short-term and long-term capital gains anymore.
What about TDS?
This is the key difference for NRIs. Fund houses deduct TDS (Tax Deducted at Source) when you redeem units. The TDS rate is typically 30% plus surcharge and cess on gains. If your actual tax liability is lower, you can claim a refund when filing your ITR.
Can I avoid double taxation?
Yes. India has DTAA agreements with over 90 countries including the UAE. If you're a UAE resident with no personal income tax, you'll only pay tax in India. Submit your Tax Residency Certificate (TRC) to claim benefits.
Tax Scenario | Rate |
|---|---|
Capital Gains | As per income tax slab |
TDS on Redemption | 30% (+ surcharge + 4% cess) |
Dividends | As per slab (TDS at 20% for NRIs) |
Source: AMFI
👉 Tip: UAE residents effectively pay zero tax on money market fund gains since there's no personal income tax in UAE. The 30% TDS is refundable when you file your Indian tax return.
Repatriation Rules
If you invest through an NRE account, both principal and gains are fully repatriable. You can transfer the money back to your UAE bank account without restrictions.
For NRO account investments, repatriation is capped at USD 1 million per financial year. You'll need to submit Form 15CA/CB for larger amounts.
The redemption process is simple. Place a request online, and proceeds (after TDS) get credited to your linked NRE/NRO account within 2-3 business days.
Money Market Funds vs NRE Fixed Deposits
Many NRIs ask us: why not just put money in an NRE FD which is also tax-free?
Fair question. Here's the comparison:
Feature | Money Market Fund | NRE FD |
|---|---|---|
Returns | 7-8% p.a. | 6-7% p.a. |
Lock-in | None | 1-5 years typical |
Premature Withdrawal | No penalty | Penalty applies |
Tax on Interest/Gains | Slab rate (refundable for UAE) | Tax-free |
Liquidity | 1-2 days | Limited |
NRE FDs win on tax simplicity since interest is completely tax-free. But money market funds win on flexibility and potentially higher returns.
If you need accessibility, money market funds make sense. If you can lock away money for 1-3 years, NRE FDs or GIFT City FDs might be better.
Risks to Consider
Money market funds aren't completely risk-free. Here's what could affect your returns:
Interest Rate Risk. When RBI raises rates, existing bond prices fall. This can temporarily reduce your fund's NAV. However, money market funds recover quickly because their holdings mature within a year.
Credit Risk. If a company whose commercial paper the fund holds defaults, you could face losses. This is rare because SEBI mandates investment in only highly-rated instruments.
Reinvestment Risk. When instruments mature, the fund manager reinvests at prevailing rates. If rates have fallen, your returns might be lower going forward.
Overall, these risks are minimal compared to equity funds. That's why money market funds are classified as "low risk" by SEBI's riskometer.
When Should You Use Money Market Funds?
Based on what we've seen with thousands of NRIs:
Use money market funds when:
- You have surplus cash sitting idle for 3-12 months
- You want better returns than a savings account
- You need quick access to funds without penalties
- You're waiting to deploy money into other investments
Skip money market funds when:
- You're building long-term wealth (use equity mutual funds instead)
- You want completely tax-free returns (use NRE FDs)
- You need money within days, not weeks (use liquid funds)
Your Next Step
Money market funds offer a smart middle ground for NRIs who want better returns than savings accounts without locking up their money for years. The 7-8% annual returns beat most UAE savings options while keeping your capital accessible.
Before you invest, check your residential status to ensure proper compliance. Compare current rates using our FD comparison tool to see how money market funds stack up against fixed deposits.
Have questions about where to park your surplus funds? Join our WhatsApp community where 15,000+ NRIs discuss these topics daily. Or download the Belong app to explore all your investment options in one place.
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