Best Mutual Funds to Invest in 2026

A member of our WhatsApp community in Dubai asked last week: "I have AED 50,000 sitting in my savings account.

I know I should invest in mutual funds. But every website gives me a different list. How do I know which funds actually work for someone like me?"

That question hits different when you live 3,000 km from India.

You can't walk into a branch.

You aren't sure which funds accept NRI money. And the tax rules changed twice in the last two years.

We hear this from NRIs every single day at Belong. After 12+ years of advising NRIs and building tools like our mutual fund explorer and NRI FD rate comparator, we've learned one thing.

The "best" fund depends entirely on your goals, your timeline, and your tax situation.

This guide does not hand you a random top-10 list.

It walks you through every fund category, explains which ones suit NRIs, breaks down the 2026 tax rules, and covers the GIFT City option that most articles skip entirely.

Why Indian Mutual Funds Still Make Sense for NRIs in 2026

India's GDP grew at about 6.5-7% in 2025, making it one of the fastest-growing major economies in the world (Source: RBI Annual Report).

Retail mutual fund participation has been rising sharply. Monthly SIP inflows crossed Rs 26,000 crore in late 2025 (Source: AMFI).

For NRIs in the UAE and GCC, three factors make Indian mutual funds attractive right now.

First, currency tailwind. The Indian rupee has depreciated roughly 3-4% per year against the dollar over the last decade.

When you invest through an NRE account today and redeem later, you often benefit from this gradual depreciation because your rupee gains convert into more dollars.

Second, tax efficiency.

UAE has no personal income tax. India's mutual fund taxes for NRIs are well-defined and DTAA-protected. This creates a clean, single-tax structure. Third, repatriation clarity. Investments made through NRE accounts are fully repatriable. No RBI approval needed.

👉 Tip: Always invest through your NRE account if you want hassle-free repatriation. NRO account investments have annual repatriation limits of USD 1 million.

A Common Mistake Before You Pick Any Fund

Here is what most NRIs get wrong. They start by asking "which fund?" when they should first ask "which category?"

Picking a specific fund before choosing the right category is like choosing a car colour before deciding whether you need an SUV or a sedan.

The category determines your risk, your returns, and your tax treatment. The specific fund within that category matters far less.

SEBI (Securities and Exchange Board of India) has defined clear categories for mutual funds (Source: SEBI Circular on Categorization, 2017).

Each category has strict rules about where the fund manager can invest. So when you pick a category, you already know the broad risk level.

Let us walk through each major category and discuss which NRIs should consider it.

Large Cap Funds: Stability Without Surprises

Large cap funds invest at least 80% of their portfolio in the top 100 companies by market capitalisation.

Think Reliance, HDFC Bank, Infosys, TCS. These companies have strong balance sheets, predictable revenue, and deep liquidity.

For NRIs who are investing in Indian mutual funds for the first time, or those with a 3-5 year timeline, large caps are the safest equity entry point.

They tend to fall less during market corrections and recover faster.

The trade-off is that returns are moderate.

Large cap funds have historically delivered around 12-15% CAGR over 5-year periods.

They rarely deliver the 25%+ returns you see in smaller fund categories.

👉 Tip: If you are parking money for a specific goal like a child's college admission 5 years away, large cap funds give you growth with less anxiety. Check how different funds match your financial goals.

Flexi Cap Funds: The All-Weather Pick

Flexi cap funds have no restriction on market cap allocation. The fund manager can invest in large, mid, or small cap stocks in any proportion.

This gives them the freedom to shift between safe large caps during uncertain times and aggressive small caps during growth phases.

For most NRIs, flexi cap funds are the single best category for a core long-term holding. One well-chosen flexi cap fund can serve as the foundation of your India portfolio.

Several flexi cap funds have delivered 17-22% CAGR over 5-year periods, which is significantly ahead of fixed deposits and NRE savings accounts.

The Parag Parikh Flexi Cap Fund stands out because it also invests in global stocks, giving you diversification beyond India within a single fund.

What most blogs miss about flexi cap funds: the fund manager's allocation style matters more than recent returns.

Some flexi cap managers are permanently tilted toward large caps. Others are aggressively tilted toward mid and small caps. Check the portfolio disclosure on the AMC website before investing.

A 70% large cap tilt and a 70% small cap tilt will behave very differently during a correction.

Mid Cap and Small Cap Funds: High Growth, High Patience

Mid cap funds invest in companies ranked 101-250 by market capitalisation. Small cap funds target companies ranked 251 and below.

These segments have historically delivered the highest returns in Indian markets, sometimes exceeding 20-25% CAGR over 5-year periods.

But the volatility is real. During the 2020 market crash, many small cap funds fell 40-50% in a matter of weeks. Mid caps fell 30-35%. Recovery took over a year.

For NRIs, mid and small cap funds make sense only under two conditions. First, your investment horizon is genuinely 7-10 years or longer.

Second, you will not panic-sell during a 30% drawdown.

If you meet both conditions, allocating 15-25% of your portfolio to mid or small cap funds can significantly boost long-term wealth. If either condition fails, stick with flexi cap or large cap funds.

👉 Tip: Never put your emergency fund or near-term goals into small caps. Use these only for money you will not need for at least 7 years. Learn more about choosing funds based on your risk appetite.

Index Funds: Low Cost, No Drama

Index funds simply replicate a market index like the Nifty 50 or the Sensex.

There is no active fund manager making decisions.

The fund just buys the same stocks in the same proportion as the index.

The biggest advantage is cost. Index fund expense ratios are typically 0.10-0.20%, compared to 0.50-1.50% for actively managed funds.

Over 20 years, this cost difference compounds to a significant amount.

Index funds are ideal for NRIs who want equity exposure but do not want to spend time evaluating fund managers, tracking performance, or worrying about manager changes.

You get market returns, nothing more, nothing less.

The Nifty 50 has delivered roughly 12-13% CAGR over the past 10 years. Not spectacular, but reliable. And you avoid the risk of picking an underperforming active fund.

For a deeper comparison, read our guide on index funds vs actively managed mutual funds.

Hybrid and Multi-Asset Funds: Built-In Diversification

Hybrid funds invest in both equity and debt.

Balanced advantage funds (also called dynamic asset allocation funds) shift between equity and debt based on market valuations.

When markets are expensive, they increase debt. When markets are cheap, they increase equity.

For NRIs who want a single-fund solution and do not want to manage multiple funds, a balanced advantage fund is a solid choice. It acts as an auto-pilot portfolio.

Multi-asset funds take this further by adding gold alongside equity and debt. Gold has historically acted as a hedge against equity volatility and currency depreciation.

In 2025, gold prices surged past Rs 80,000 per 10 grams in India, reinforcing its role as a portfolio stabiliser.

The 2026 tax rules for hybrid funds depend on the equity allocation.

If a hybrid fund holds 65% or more in domestic equity, it is taxed like an equity fund.

Below that threshold, different rules apply, which we cover in the tax section below.

👉 Tip: Multi-asset funds are a strong choice for NRIs in 2026. They give you equity growth, debt stability, and gold protection in a single fund.

No need to manage three separate investments. Compare mutual funds vs fixed deposits to understand how hybrid funds stack up.

Debt Mutual Funds: What Changed and Why It Matters

Debt funds invest in government bonds, corporate bonds, treasury bills, and money market instruments. They used to be a favourite for NRIs who wanted stable, tax-efficient returns.

Then the rules changed.

The Finance Act 2023 removed the indexation benefit for debt funds purchased on or after April 1, 2023 (Source: Income Tax Department).

Earlier, if you held a debt fund for more than 36 months, your gains were taxed at 20% with inflation adjustment (indexation).

That benefit is now gone. All gains from post-April 2023 debt fund purchases are taxed at your income tax slab rate, regardless of holding period.

For NRIs in the 30% tax bracket, this makes debt funds significantly less attractive than they used to be.

The after-tax returns from a debt fund yielding 7-8% drop to around 5-5.5% after 30% tax.

Here is the edge case most blogs miss: debt funds purchased before April 1, 2023 and sold after July 23, 2024 get a new treatment.

The long-term threshold drops from 36 to 24 months, and LTCG is taxed at 12.5% without indexation. Check the exact date of your investment before making any redemption decisions.

For most UAE-based NRIs looking for stability, a GIFT City USD fixed deposit at 5-6% with zero Indian tax may be a better alternative to debt mutual funds in 2026.

We cover this in the GIFT City section below.

ELSS Tax Saving Funds: Do They Help NRIs?

ELSS (Equity Linked Savings Schemes) are mutual funds that offer tax deductions under Section 80C of the Income Tax Act. They come with a mandatory 3-year lock-in period.

Here is the catch for NRIs. Section 80C deductions are available only if you have taxable income in India.

If your only income in India is NRE FD interest (which is tax-free) or mutual fund gains, you may have no taxable income to claim deductions against.

ELSS makes sense for NRIs who earn rental income in India, have capital gains from property sales, or earn salary income that is taxable in India.

For UAE-based NRIs with no Indian income, ELSS offers no tax benefit over a regular equity fund.

The 3-year lock-in can also be a disadvantage. You get similar equity exposure from a flexi cap fund without any lock-in.

👉 Tip: Don't invest in ELSS just because someone told you it "saves tax." Check whether you actually have taxable income in India first. For a detailed breakdown, see our guide on ELSS funds for NRIs.

The 2026 Tax Rules Every NRI Must Know

Mutual fund taxation for NRIs changed significantly after the July 2024 Union Budget.

Here is the updated framework that applies for FY 2025-26 (assessment year 2026-27) (Source: Income Tax Department).

Equity-oriented funds (holding 65%+ in domestic equities): Short-term capital gains (held less than 12 months) are taxed at 20%.

Long-term capital gains (held 12+ months) are taxed at 12.5%, with an annual exemption of Rs 1.25 lakh.

This Rs 1.25 lakh exemption applies across all equity assets combined, including shares and equity mutual funds.

Non-equity funds (debt, gold, international funds): For units bought on or after April 1, 2023, gains are taxed at your slab rate regardless of holding period.

For units bought before this date, the holding period for LTCG is 24 months, and LTCG is taxed at 12.5% without indexation.

An important NRI-specific detail: AMCs deduct TDS (Tax Deducted at Source) on mutual fund redemptions for NRIs.

For equity STCG, TDS is 20%. For equity LTCG, TDS is 12.5%. You can claim refunds when you file your Indian income tax return if excess TDS was deducted.

The UAE advantage: Since the UAE has no personal income tax, your total tax liability on Indian mutual fund gains is limited to what India charges. The India-UAE DTAA ensures you do not pay tax twice. You pay in India, and that is it.

👉 Tip: If your equity LTCG is close to the Rs 1.25 lakh exemption limit, consider splitting redemptions across two financial years. This doubles your exemption to Rs 2.5 lakh. Read more about how to avoid double taxation as an NRI.

How NRIs Can Invest: The Step-by-Step Process

Many NRIs assume investing in Indian mutual funds requires a trip to India. It does not. The entire process can be completed online in 2026.

Step 1: Open an NRE or NRO account.

If you do not already have one, several banks like SBI, HDFC, and ICICI offer online NRE/NRO account opening for NRIs. The NRE account is preferable for investment repatriation.

Step 2: Complete KYC.

SEBI requires NRIs to complete Know Your Customer verification before investing in mutual funds. This involves submitting your passport, visa copy, overseas address proof, and a recent photograph.

Many AMCs and platforms now accept digital KYC. Belong offers doorstep document pickup in the UAE, making the process even easier.

Step 3: Choose your investment route.

You can invest directly with the AMC (Asset Management Company), through a bank, or through an investment platform. Direct plans have lower expense ratios than regular plans.

Step 4: Start with SIP or lump sum. A SIP (Systematic Investment Plan) auto-debits a fixed amount from your NRE/NRO account each month.

It averages out your purchase price and removes the stress of timing the market. Most funds allow SIPs starting at Rs 500.

A restriction to know: NRIs from the US and Canada face additional restrictions. Several AMCs do not accept investments from US/Canada-based NRIs due to FATCA compliance requirements.

Always check with the AMC before investing.

Learn the full process in our detailed guide on how NRIs can invest in mutual funds.

SIP vs Lump Sum: What Works Better for NRIs?

This is a debate we see every week in our community. The short answer: for most NRIs, SIP wins.

SIP works better because NRIs earn in foreign currency (like AED or USD) on a monthly cycle. A monthly SIP aligns naturally with your income flow. You invest a fixed amount in rupees each month.

When markets fall, you automatically buy more units. When markets rise, you buy fewer.

Over a 10-year period, SIP returns have been within 1-2% of lump sum returns for most equity categories. But SIP delivers those returns with significantly less stress and timing risk.

Lump sum investing makes sense only in two situations. First, you have received a large bonus or end-of-service gratuity and want to deploy it quickly.

Second, markets have corrected sharply (20%+ fall from recent highs) and you have cash available.

For a detailed comparison with real numbers, read our guide on SIP vs lump sum investing for NRIs.

👉 Tip: If you want to invest a lump sum but feel nervous about market timing, split it into 3-6 monthly tranches. This gives you some rupee cost averaging while deploying capital faster than a regular SIP.

The GIFT City Alternative Most NRIs Do Not Know About

Here is something that most "best mutual funds" articles skip entirely: GIFT City mutual funds.

GIFT City (Gujarat International Finance Tec-City) is India's International Financial Services Centre. It operates under IFSCA regulation, not SEBI. Mutual funds launched here are denominated in USD, GBP, or other foreign currencies.

Why does this matter for NRIs? Three reasons.

Zero capital gains tax in India.

Under Section 10(4D) of the Income Tax Act, income from specified funds in GIFT City is exempt from Indian income tax for non-residents (Source: Income Tax Act). For UAE-based NRIs with no domestic income tax, this means completely tax-free returns. Compare this to 20% STCG and 12.5% LTCG on regular Indian mutual funds.

No currency conversion risk.

You invest in USD, you get returns in USD. No rupee conversion at entry or exit. This eliminates the currency risk that quietly eats into NRI returns from regular Indian mutual funds.

No TDS hassle.

Regular Indian mutual funds deduct TDS on NRI redemptions. You then have to file an Indian tax return to claim refunds. GIFT City funds skip this entirely.

Tata Asset Management launched the Tata India Dynamic Equity Fund at GIFT City in September 2025 with a minimum investment of just USD 500.

DSP, Edelweiss, and Mirae Asset also offer GIFT City fund options.

The minimum used to be USD 150,000 for most products. That barrier has dropped significantly.

Explore available GIFT City mutual funds and GIFT City alternative investment funds on our platform.

For a deeper comparison, read our guide on GIFT City mutual funds vs regular Indian mutual funds.

What About GIFT City USD Fixed Deposits?

If mutual funds feel too volatile, GIFT City also offers USD fixed deposits through banks like SBI, HDFC, and ICICI at their IFSC banking units.

Current rates range from 4.5-6% on USD deposits (Source: check latest rates on our FD rate explorer).

The key advantage: interest income from GIFT City USD fixed deposits is completely tax-free in India under Section 10(15)(iv)(fa) of the Income Tax Act. For UAE-based NRIs, this means zero tax anywhere.

Compare this to NRE fixed deposits which offer 6.5-7.5% in rupees but carry currency depreciation risk. If the rupee depreciates 3-4% against the dollar during your FD tenure, your effective dollar return from an NRE FD drops to 3-4%.

A GIFT City USD FD giving 5% with no currency risk and no tax can deliver higher effective returns than an NRE FD giving 7% with 3-4% currency depreciation.

For a detailed breakdown, read our comparison of GIFT City FDs vs regular bank FDs.

👉 Tip: Many NRIs use GIFT City FDs as the "safe" portion of their portfolio and Indian mutual funds for the "growth" portion. This combination gives you stability in dollars and growth potential in rupees.

How to Build a Mutual Fund Portfolio as an NRI

A well-built portfolio matches your risk tolerance, investment horizon, and financial goals.

There is no single "best" portfolio. But here is a framework that works for most UAE-based NRIs.

Conservative profile (3-5 year horizon, low risk tolerance): Allocate 50-60% to large cap or index funds, 20-30% to hybrid or balanced advantage funds, and 10-20% to GIFT City FDs or debt alternatives. Skip small caps entirely.

Moderate profile (5-7 year horizon, medium risk tolerance): Allocate 30-40% to flexi cap funds, 20-30% to large cap or index funds, 15-20% to mid cap funds, and 10-15% to multi-asset funds.

Aggressive profile (7-10+ year horizon, high risk tolerance): Allocate 30-40% to flexi cap funds, 20-25% to mid cap funds, 15-20% to small cap funds, and 10-15% to international or thematic funds.

Across all profiles, keep your emergency fund in liquid instruments like GIFT City FDs or savings accounts. Never invest emergency money in equity mutual funds.

For a step-by-step approach, read our guide on how to build a mutual fund portfolio and the 5-layer investment framework.

Repatriation: Getting Your Money Back to the UAE

This is the silent worry that stops many NRIs from investing in India. "Can I actually get my money out?"

The answer is yes, if you set it up correctly from the start.

Investments made through an NRE account are fully repatriable.

When you redeem your mutual fund, the proceeds go back to your NRE account. From there, you can transfer freely to your UAE bank account. No RBI approval. No ceiling.

Investments through an NRO account have an annual repatriation limit of USD 1 million after applicable taxes and a certificate from a Chartered Accountant.

For GIFT City investments, repatriation is even simpler. Since these are denominated in foreign currency within an IFSC framework, remitting funds back to your UAE account involves minimal paperwork.

The key rule: always invest through the right account type from the beginning. Converting from NRO to NRE later involves paperwork, CA certificates, and delays. Start right to finish easy.

👉 Tip: Before investing, confirm with your bank that your NRE account is correctly linked for mutual fund investments. Some banks require a separate "investment" mandate.

Mistakes NRIs Make When Choosing Mutual Funds

After advising NRIs for over a decade, we see the same mistakes repeatedly.

Chasing last year's returns.

The fund that topped the charts in 2025 may lag in 2026. Markets rotate between sectors and cap sizes.

A fund that delivered 40% last year by concentrating on one hot sector may crash when that sector cools. Look at 3-year and 5-year rolling returns, not trailing 1-year returns.

Holding too many funds.

We regularly see NRIs with 15-20 mutual funds. This over-diversification cancels out the benefit of active management. Your portfolio starts behaving like an expensive index fund.

Three to five well-chosen funds across different categories is enough. Read about too many funds vs too few.

Ignoring expense ratios.

A 1% higher expense ratio does not sound like much. But over 20 years on a Rs 50 lakh investment, it costs you Rs 15-20 lakh in lost returns.

Always compare expense ratios within the same category.

Not considering the return-to-India scenario.

If you plan to return to India within the next few years, your mutual fund choices change.

Your tax residency status will shift from NRI to RNOR (Resident but Not Ordinarily Resident) for up to 3 years, and then to Resident. Plan your investments with this transition in mind.

For more pitfalls to watch out for, read our detailed guide on NRI investment mistakes and mutual fund investment mistakes.

What Happens to Your Mutual Funds If You Return to India?

This is the edge case no other article covers properly.

When you return to India and become a resident, your existing mutual fund investments continue.

You do not need to sell them. But you must update your KYC with the AMC, change your bank mandate from NRE to a resident savings account, and inform the AMC about your change in residential status.

Your NRE account converts to a regular resident account. NRE FDs that have not matured can continue at the existing rate until maturity.

Tax treatment changes going forward.

As a resident, your global income becomes taxable in India. But gains accrued during your NRI period are taxed based on NRI rules. Only gains after you become a resident follow resident tax rules.

For a complete checklist, read our financial checklist for returning NRIs and tax status change guide.

FEMA Rules Every NRI Investor Should Know

FEMA (Foreign Exchange Management Act) governs all NRI investments in India. Here are the rules that directly affect your mutual fund investments.

NRIs can invest in Indian mutual funds on both a repatriation and non-repatriation basis. Repatriation-basis investments must be made through NRE or FCNR accounts. Non-repatriation investments can be made through NRO accounts.

There is no upper limit on how much an NRI can invest in mutual funds.

However, if a single NRI or a group of NRIs invests more than a certain threshold in a single fund, the AMC may restrict further investments under FEMA guidelines for mutual funds.

NRIs do not need a PIS (Portfolio Investment Scheme) account for mutual fund investments.

PIS is required only for buying shares on the stock exchange. Mutual funds are purchased directly from the AMC.

Read our comprehensive guide on RBI rules for NRI investments for a complete regulatory overview.

Direct Plans vs Regular Plans: Which Should NRIs Pick?

Every mutual fund in India offers two versions: a direct plan and a regular plan. The direct plan has a lower expense ratio because it does not pay a commission to a distributor.

The difference can be 0.5-1% annually.

Over 10 years, this compounds to 8-15% more returns on your investment. For NRIs who can manage their own investments, direct plans are clearly better.

The only reason to choose a regular plan is if you need personalised advisory support from a distributor who helps with KYC, fund selection, and ongoing portfolio review. If you are comfortable with self-directed investing, always go direct.

Track your GIFT Nifty performance and use our mutual fund tools to research and compare funds directly.

The Bottom Line

There is no single "best mutual fund" that works for every NRI. The right fund depends on your timeline, your risk comfort, your tax situation, and whether you plan to stay abroad or return to India.

What we can say with confidence: in 2026, Indian markets offer a rare combination of structural growth, regulatory clarity, and accessible technology for NRI investors.

Whether you go with a simple Nifty 50 index fund or build a diversified portfolio across large cap, flexi cap, and GIFT City options, the key is to start. Time in the market beats timing the market, every single time.

NRIs across the UAE, GCC, UK, and beyond are already discussing fund strategies, sharing real-world results, and helping each other navigate regulations in our WhatsApp community.

If you want honest, peer-supported guidance instead of generic advice, join the conversation.

Download the Belong app to explore GIFT City FDs, compare mutual funds, and manage your India investments from wherever you are.

Disclaimer: Mutual fund investments are subject to market risks. Read all scheme-related documents carefully before investing. Past performance is not indicative of future returns. This article is for educational purposes and does not constitute investment advice. Consult a SEBI-registered investment advisor for personalised recommendations.