Can NRIs invest in ELSS (tax-saving) mutual funds?

Yes, and NRIs can claim the Section 80C deduction (up to ₹1.5 lakh) if they opt for the old tax regime and have eligible Indian income.

Do I need to pay wealth tax or gift tax on mutual fund transfers?

India abolished wealth tax in 2015. Gift tax applies only if you're gifting units to non-relatives exceeding ₹50,000 in a year. Learn more about NRI gift tax rules .

What happens to my mutual funds if I return to India?

Update your status from NRI to Resident with your fund house. Your investments continue as-is, but tax treatment changes to resident rates (usually better for you).

Can I transfer mutual fund units from India to abroad?

No, you can't transfer units physically. You must redeem (sell) them, pay applicable taxes, and transfer the proceeds to your foreign bank account.

Can I start a mutual fund SIP from my UAE salary account?

No. You must first transfer money to your Indian NRE/NRO account, then set up the SIP from there. Use remittance services like Wise, Vance, or your bank's wire transfer.

Best Mutual Funds for NRIs | Tax-Efficient Investing

Last week, we spoke with Rajesh, an IT manager in Dubai who's been sending money home for five years.

He invests in NRI fixed deposits but watches his friends' mutual fund portfolios grow faster. "I want to invest in mutual funds," he said, "but the tax rules confuse me, and I'm worried about getting my money back when I need it."

If you're reading this, you're probably like Rajesh. You know mutual funds can deliver better returns than traditional NRE FDs, but you're not sure where to start or which funds suit NRIs.

The good news? You can invest in Indian mutual funds from anywhere in the world, benefit from India's growth story, and with proper planning, manage taxes smartly through DTAA provisions.

At Belong, we've helped thousands of NRIs build investment portfolios that balance growth with tax efficiency.

This guide will walk you through everything: the best mutual fund categories for NRIs in 2025, how taxation works after the latest budget changes, which account type to use, and practical steps to get started.

By the end, you'll know exactly which funds match your goals and how to invest without unnecessary complications.

Understanding Tax Rules First (Because This Matters Most)

Before we discuss which funds to buy, let's talk about what you'll pay in taxes. Many NRIs skip this and get shocked during redemption when TDS (Tax Deducted at Source) eats into their returns.

Equity-Oriented Mutual Funds
These invest at least 65% in Indian stocksAccording to the Union Budget 2025, here's how NRIs are taxed:

Short-Term Capital Gains (STCG): If you sell within 12 months, you pay 20% tax (increased from 15% in Budget 2024).
Long-Term Capital Gains (LTCG): Hold for more than 12 months, and gains above ₹1.25 lakh are taxed at 12.5%.

Debt-Oriented Mutual Funds
Gains are taxed at slab rates with no distinction for holding period in newer investments.

Purchase Date	Tax Implication
Before 1st April 2023	LTCG at 12.5% after holding for more than 2 years. Else STCG at slab rates.
On or After 1st April 2023	Gains are taxed at applicable slab rates.

TDS Rates for NRIs
The fund house deducts TDS at these rates:

Equity LTCG: 12.5% TDS (on gains above ₹1.25 lakh)
Equity STCG: 20% TDS
Debt funds: 30% TDS (both short-term and long-term)

👉 Tip: Don't worry about double taxation. India has DTAA agreements with the US, UK, UAE, and 100+ countries. You can claim foreign tax credits in your resident country for taxes paid in India.

Why Mutual Funds Beat Traditional Fixed Deposits for NRIs

Let's be honest. NRE and NRO fixed deposits feel safe because they're predictable. You put ₹10 lakh at 7% and know exactly what you'll get. But here's what you lose: growth potential and rupee depreciation protection.

Over the past five years, the top large-cap equity funds have delivered 22-25% annualized returns, according to data from Value Research. Even after paying taxes, your post-tax returns far exceed FD rates. Plus, mutual funds give you:

Professional Management: Fund managers research and pick stocks daily. You don't need to track individual companies.

Diversification: A single mutual fund investment gives you exposure to 30-100 stocks across sectors, reducing risk.

Liquidity: Unlike FDs with premature withdrawal penalties, mutual funds can be redeemed anytime (though you should invest for the long term).

Inflation Protection: Equity funds historically beat inflation, preserving your purchasing power when you eventually return to India.

Best Mutual Fund Categories for NRIs in 2025

Not all mutual funds suit NRIs. Here are the categories that work best:

1. Large-Cap Equity Funds (The Foundation)

Large-cap funds invest at least 80% in India's top 100 companies-think Reliance, TCS, HDFC Bank, and Infosys. These are SEBI-mandated as "large-cap" stocks ranked 1-100 by market capitalization.

Why NRIs Should Consider Them:

Lower volatility than mid-cap or small-cap funds
Companies with proven track records
Stable returns over 5-7 years
Survive market downturns better

Top Performers (Based on 5-Year Returns):

Nippon India Large Cap Fund: 25.24% CAGR CAGR
ICICI Prudential Bluechip Fund: 17.82% returns (3-year)
HDFC Large Cap Fund: 21.8% returns (5-year)

Data sourced from Groww's mutual fund tracker and iNRI's fund analysis.

👉 Tip: Large-cap funds should form the core of your portfolio-allocate 50-60% here if you have a moderate risk appetite.

2. Large & Mid-Cap Funds (Balanced Growth)

These funds invest 35% in large-cap and 35% in mid-cap stocks (ranked 101-250). You get stability from large-caps plus growth potential from mid-caps.

Why This Works for NRIs:
If you're investing for 7-10 years (maybe planning to return to India eventually), this category balances risk and reward. Mid-cap companies are growing faster but come with higher volatility, while large-caps provide a cushion during market corrections.

3. Flexi-Cap or Multi-Cap Funds (Maximum Flexibility)

These funds can invest across large, mid, and small-cap stocks based on market conditions. The fund manager has the freedom to shift allocation as opportunities emerge.

Best For: NRIs who want to participate in India's growth across all segments but don't want to worry about rebalancing.

4. Debt Funds (For Conservative Investors)

If you're closer to retirement or need stability, debt funds invest in government bonds, corporate bonds, and money market instruments. Returns are 7-9%, slightly better than FDs, with better liquidity.

Important Note: After Budget 2024 changes, debt funds held less than 24 months are taxed at your slab rate. For NRIs in high tax brackets, this can mean 30% tax. Consider this before investing.

5. Hybrid Funds (The Middle Path)

These invest in both equity (typically 40-60%) and debt. They offer moderate returns with lower risk than pure equity funds.

Who Should Use Them:
NRIs who want exposure to stocks but can't handle the volatility of 100% equity portfolios. These funds smooth out returns during market turbulence.

NRE vs NRO Account: Which One Should You Use?

This choice affects how easily you can bring money back abroad.

NRE Account (Non-Resident External):

Use this if you're investing money earned abroad
Both principal and gains are fully repatriable (you can transfer everything back)
No repatriation limits or Form 15CA/15CB paperwork

Also Read -Common Mistakes NRIs Make While Choosing an NRE Banking Account

NRO Account (Non-Resident Ordinary):

Use this for income earned in India (rental income, dividends, etc.)
Repatriation limit: USD 1 million per financial year
Requires Form 15CA/15CB filing for large transfers

Also Read -Best NRO Accounts for UAE NRIs - How to Choose Guide

👉 Tip: Always prefer NRE accounts for mutual fund investments if your goal is to eventually move the money abroad. It eliminates paperwork and restrictions. Learn more about NRI account types here.

Also Read - NRE vs NRO Account for Mutual Fund Investments

Special Considerations for NRIs in the US, UK, and UAE

For US-Based NRIs

Here's the challenge: Many Indian mutual funds don't accept investments from US residents due to FATCA (Foreign Account Tax Compliance Act) compliance issues. According to ICICI Bank's NRI guide, several fund houses restrict US/Canada NRIs.

Workaround Options:

Invest through platforms that cater specifically to US NRIs (like SBNRI, iNRI)
Use a Power of Attorney to have someone in India manage investments
Consider GIFT City alternatives, which we'll discuss below

Tax Reporting: You'll need to report these investments on your US tax return. The US taxes unrealised gains annually (mark-to-market), unlike India which taxes only on redemption. Consult a cross-border tax advisor.

For UK-Based NRIs

The UK doesn't tax you twice if you use the India-UK DTAA. You pay tax in India, claim foreign tax credit in the UK, and you're done.

KYC: Most fund houses now accept UK address proof and passport copies for video KYC.

For UAE-Based NRIs

You're in the best position tax-wise. The UAE has no personal income tax, so you only pay tax in India on mutual fund gains. Plus, UAE-India DTAA protects you from any unexpected liabilities.

The challenge? Some NRIs struggle with KYC documentation while living in the UAE. Many platforms now offer video KYC, making this process seamless.

How to Start Investing in Mutual Funds from Abroad

Step 1: Complete Your KYC
You'll need:

PAN card
Passport
Visa/residence permit
Overseas address proof
Bank statement (NRE/NRO account)

Platforms like Belong, SBNRI, and iNRI offer online video KYC, so you don't need to visit India.

Step 2: Open/Update Your NRE or NRO Account
If you haven't already, open an NRI bank account with a bank that has a good mutual fund investment platform. HDFC, ICICI, Axis, and SBI all offer this.

Update your residential status from "Resident" to "NRI" if you've recently moved abroad.

Step 3: Choose Your Funds
Use tools like Belong's NRI FD Comparison Tool to compare returns, or use Value Research/Morningstar for fund analysis.

Step 4: Decide: Lump Sum or SIP?

SIP (Systematic Investment Plan): Invest a fixed amount monthly (say ₹10,000). This averages out market volatility and is easier on your budget.
Lump Sum: Invest a large amount at once. Do this only if you're confident about market timing or have a long horizon (10+ years).

Most experts recommend SIP for NRIs because it reduces risk and builds discipline.

Also Read - Best SIP Options for NRIs – Step by Step Guide

Step 5: Set Up Auto-Debit from Your NRE/NRO Account
Once you choose your funds, link your bank account for automatic monthly deductions (for SIP) or one-time payment (for lump sum).

Why Belong's Platform Makes This Easier

At Belong, we've built tools specifically for NRIs who want smarter investment options:

1. USD Fixed Deposits in GIFT City
Before you lock all your money in rupee-based mutual funds, consider diversification. Our GIFT City FDs offer tax-free returns in USD, protecting you from rupee depreciation. Compare this with mutual funds using our FD vs Mutual Fund comparison guide.

2. NRI FD Comparison Tool
Not ready for mutual funds yet? Use our FD Rates Explorer to compare NRE, NRO, FCNR, and GIFT City FD rates across banks-all in one place.

3. Residential Status Calculator
Confused about your tax residency? Use our Residential Status Calculator to determine whether you're an NRI, RNOR, or Resident for tax purposes. This affects how your mutual fund gains are taxed.

4. GIFT Nifty Tracker
Monitor Indian equity market trends 20 hours a day with our GIFT Nifty Live Tracker. This helps you time your SIP installments or lump sum investments better.

5. Join Our NRI Community
Have questions about mutual funds, taxation, or repatriation? Join Belong's WhatsApp Community where 10,000+ NRIs share insights, ask questions, and help each other navigate Indian investments.

Common Mistakes NRIs Make (And How to Avoid Them)

Mistake #1: Not Holding Long Enough
Selling equity funds within 12 months triggers 20% STCG tax. If you can wait just a few more weeks to cross the 12-month mark, you save 7.5% in taxes (20% vs 12.5%).

Mistake #2: Ignoring Repatriation Rules
Investing through an NRO account without understanding the USD 1 million repatriation limit can create problems when you need to transfer large amounts abroad. Always prefer NRE for repatriable investments.

Mistake #3: Not Filing ITR in India
Even if TDS is deducted, you must file an Income Tax Return in India to claim refunds or carry forward losses. Deadline: July 31 every year. Learn more about NRI tax filing here.

Mistake #4: Chasing Last Year's Top Performer
A fund that gave 30% returns last year might not repeat that performance. Look at 5-year and 10-year track records, not just recent returns.

Mistake #5: Switching Funds Too Often
Every switch is treated as redemption + fresh purchase, triggering capital gains tax. Stick with your funds unless there's a solid reason to move.

Tax-Saving Strategies for NRI Mutual Fund Investors

Strategy 1: Use the ₹1.25 Lakh LTCG Exemption Smartly
You get ₹1.25 lakh tax-free on long-term equity gains every year. If you're close to this limit, redeem profits annually and reinvest. This "tax harvesting" saves you 12.5% tax on that amount.

Strategy 2: Offset Gains with Losses
If you have losing funds, sell them to book losses. These losses can offset your gains from winning funds, reducing your tax bill. Just make sure to sell the losing fund before March 31 (end of financial year).

Strategy 3: Split Investments Across Financial Years
If you're planning a large investment, split it across two financial years. This way, you can use two years' worth of LTCG exemption (₹2.5 lakh total).

Strategy 4: Claim DTAA Benefits
Attach your Tax Residency Certificate (TRC) from your resident country when filing ITR in India. This ensures you don't pay tax twice on the same income. Read our detailed guide on claiming DTAA benefits.

The Bigger Picture: Building a Diversified NRI Portfolio

Mutual funds shouldn't be your only investment. Here's how a balanced NRI portfolio might look:

40%: Equity mutual funds (large-cap, flexi-cap, hybrid)
30%: GIFT City USD FDs or NRE FDs (for stability)
15%: Real estate in India (if planning to return)
10%: GIFT City AIFs (for high-growth opportunities)
5%: Gold or international ETFs (hedge against rupee depreciation)

Your exact allocation depends on:

How many years until you return to India (or retire)
Your risk tolerance
Whether you're saving for a specific goal (child's education, home purchase, retirement)

Final Thoughts: Start Small, Stay Consistent

The best time to start investing in mutual funds was five years ago. The second-best time is today.

You don't need to invest ₹1 lakh at once. Start with ₹5,000/month through SIP and increase as you get comfortable. Over ten years at 15% returns, even ₹5,000/month grows to ₹13.8 lakh.

At Belong, we've seen NRIs build significant wealth by starting small and staying consistent. The key isn't timing the market perfectly; it's spending time in the market.

Ready to take the next step?

Download the Belong App to explore GIFT City USD FDs and compare them with mutual fund returns: Get the App
Join Belong's WhatsApp Community to ask questions, share experiences, and learn from 10,000+ NRIs: Join Now
Use Our Free Tools:

The road to financial security as an NRI doesn't have to be complicated. With the right mix of mutual funds, fixed deposits, and smart tax planning, you can build wealth in India while living abroad-and do it with confidence.

Have questions about which mutual funds suit your situation? Drop a question in our WhatsApp community, and our team of financial experts will guide you.

Also Read - Can NRIs Continue SIPs After Moving Abroad?

Disclaimer: Mutual fund investments are subject to market risks. Read all scheme-related documents carefully. This article is for educational purposes only and not personalized investment advice. Consult a SEBI-registered investment advisor before making investment decisions.

Sources:

Income Tax Bill 2025 - DBS Bank NRI Taxation Guide

SEBI Large-Cap Fund Regulations - iNRI Large Cap Funds Guide

Mutual Fund Returns Data - Value Research and Groww

FATCA Compliance - ICICI Bank NRI Investment Guide

Capital Gains Tax Changes - Zerodha Tax Rules Update