Do Mutual Funds Beat Inflation Over Time

Priya, an NRI in Dubai, saved AED 50,000 in her UAE bank account five years ago. It earned about 1% interest.

But when she checked what that money could buy back in India, prices had climbed roughly 30%.

Her "safe" savings had quietly lost purchasing power.

This is the silent risk most NRIs ignore. Not market crashes. Not scams. Just inflation, slowly eating away at money that sits still.

At Belong, we hear this concern daily from NRIs in our WhatsApp community.

This guide breaks down the real data, compares fund categories, and shows you what actually works.

What Inflation Actually Does to Your Money

Inflation is the steady rise in prices of goods and services. When prices go up, each rupee you hold buys less.

India's average inflation rate has been around 6% to 7% per year over the past two decades, according to World Bank data. Something costing ₹1 lakh in 2005 would cost roughly ₹3.2 lakh today.

For NRIs, inflation hits twice. The rupee has also depreciated against the dollar and AED over the years. So your overseas savings lose value in rupee terms, and those rupees buy less inside India.

👉 Tip: Always compare investments using "real returns" (return minus inflation). A 7% FD with 6% inflation gives just 1% real growth, before tax.

The Numbers: Equity Mutual Funds vs. Inflation

The Nifty 50 Total Returns Index has delivered approximately 12% to 13% CAGR over the past 10 to 20 years, according to NSE data analysed by BMS Money. Against average inflation of 6% to 7%, that's a real return of 5% to 7% per year.

Sources: NSE Indices, RBI, World Bank

Over any 10-year rolling period since 1999, the Nifty 50 has not delivered a negative CAGR. The longer you hold, the more predictable and inflation-beating the returns become.

Why FDs Alone Won't Protect Your Purchasing Power

Many NRIs default to fixed deposits for safety. FDs do protect your capital. But they rarely protect your purchasing power.

Most Indian banks offer NRE FD rates of 6% to 7%. After adjusting for inflation, the real return hovers near zero. For NRO FDs, interest is taxable at 30% for NRIs, pushing effective post-tax returns below inflation.

👉 Tip: FDs work well for money you'll need within 1 to 3 years. For anything longer, compare FD rates but don't rely on them as your only investment.

Not All Mutual Funds Beat Inflation

This is the part most articles skip. Not every fund category delivers inflation-beating returns.

Equity funds (large-cap, flexi-cap, mid-cap) have historically beaten inflation over 7+ year periods. As India's economy grows, company revenues and stock prices tend to rise faster than general prices.

Debt funds return roughly 7% to 9%, slightly ahead of inflation. After tax, the margin shrinks.

Hybrid funds mix equity and debt, often delivering 9% to 12% over long periods. A solid middle ground for NRIs who want inflation protection without full equity risk.

The fund category you choose matters more than the specific fund name.

How SIPs Give You an Edge

A Systematic Investment Plan (SIP) lets you invest a fixed amount monthly. You buy more units when markets dip and fewer when they peak. This is called rupee-cost averaging.

Over a 10-year SIP in large-cap equity funds, investors have historically seen annualised returns of 12% to 14%, according to HDFC Mutual Fund's investor education. After adjusting for 6% inflation, that's roughly 6% to 8% real growth.

👉 Tip: Even ₹10,000 to ₹25,000 per month can build a meaningful corpus over 10 to 15 years. Start your SIP as an NRI with proper KYC in place.

The NRI Currency Problem: Inflation Plus Depreciation

Your earnings are in AED or USD. The rupee has depreciated from about ₹48 per dollar in 2009 to over ₹85 in 2025. That's roughly 4% to 5% depreciation per year.

So NRIs investing in rupee mutual funds need returns that beat both inflation AND currency loss.

This is where GIFT City investments become relevant. USD-denominated deposits and GIFT City mutual funds remove currency risk entirely. Your principal stays in dollars. Your returns come in dollars.

Belong offers access to GIFT City USD fixed deposits with tax-free returns under current IFSCA regulations, plus protection against rupee depreciation.

Tax on Mutual Fund Gains: The Fine Print

Equity Mutual Funds: Short-term gains (held under 1 year) taxed at 20%. Long-term gains above ₹1.25 lakh per year taxed at 12.5%, as per current tax rules.

Debt Mutual Funds: All gains taxed at the investor's income slab rate regardless of holding period.

GIFT City Funds: Currently enjoy favourable tax treatment under IFSCA regulations.

For UAE-based NRIs (a zero income-tax jurisdiction), the India-UAE DTAA can help reduce withholding tax. Always verify your specific situation with a qualified advisor.

Source: Income Tax Department of India

When Mutual Funds Don't Beat Inflation

No honest guide should skip this. During the 2008 crisis, the Nifty 50 fell over 50% in a single year. Between 2018 and 2020, certain mid-cap funds delivered flat returns while inflation continued at 5% to 6%.

The key variable is time. Over 1 to 3 year windows, mutual funds can underperform inflation. Over 10+ years, every historical rolling period of the Nifty 50 has delivered positive real returns.

👉 Tip: Don't check your equity portfolio every week. The results show up over years, not days.

What Should You Do Next?

The data favours long-term equity mutual fund investors. Over every meaningful horizon, equity funds in India have beaten inflation by a healthy margin.

But picking the right funds, understanding tax implications, and managing currency risk requires guidance.

Thousands of NRIs across the UAE and GCC are already discussing these strategies in our WhatsApp community, sharing experiences and making better decisions together. Join them.

Download the Belong app to explore mutual fund options, compare NRI FD rates, track GIFT Nifty, and access alternative investment funds built for NRIs like you.

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.