PPF vs Mutual Funds for NRIs - Guaranteed Safety or Higher Growth

Here's a question we hear almost weekly in our WhatsApp community: "I have an old PPF account from before I moved to Dubai. Should I continue it, or switch to mutual funds?"

The answer isn't straightforward. At Belong, we've helped hundreds of UAE-based NRIs navigate this exact decision. The truth is, what works for a resident Indian doesn't work the same way for you as an NRI.

PPF offers guaranteed 7.1% tax-free returns. Mutual funds have delivered 12-15% average returns over 10 years. But here's what most articles won't tell you: NRIs cannot open new PPF accounts. And that changes everything.

In this guide, we'll break down both options, the specific rules that apply to NRIs, real return calculations, and a smarter alternative most NRIs haven't discovered yet.

Can NRIs Invest in PPF?

Let's address the most important question first.

No, NRIs cannot open new PPF accounts. This restriction has been in place since the Public Provident Fund Scheme, 2019 issued by the Government of India.

If you opened a PPF account while you were a resident Indian and later became an NRI, here's what you need to know:

• You can continue contributing to your existing PPF until the 15-year maturity period completes
• You cannot extend the account beyond 15 years (unlike resident Indians who can extend in 5-year blocks)
• Contributions must be made on a non-repatriation basis
• Upon maturity, proceeds are credited to your NRO account
• Repatriation is limited to USD 1 million per financial year

👉 Tip: If you haven't informed your bank about your NRI status, do it immediately. Accounts found in violation may earn only 4% interest instead of 7.1%, as per DBS Bank's NRI guidelines.

Many NRIs in our community discovered this the hard way. One member had extended his PPF without notifying his bank about his status change. When he tried to close the account, he found out the interest earned during the extension period was recalculated at the Post Office Savings Account (POSA) rate of 4%.

What Is the Current PPF Interest Rate?

The PPF interest rate for FY 2025-26 is 7.1% per annum, compounded annually. This rate has remained unchanged since April 1, 2020, spanning over 19 consecutive quarters.

Source: Ministry of Finance Notification, December 2025

The PPF interest rate is linked to the 10-year government securities yield plus a 25 basis point spread. However, the government doesn't strictly follow this formula. Despite market conditions suggesting a potential rate cut, the Finance Ministry has kept rates stable for conservative savers.

For NRIs, this 7.1% rate is attractive because it's completely tax-free in India under the EEE (Exempt-Exempt-Exempt) regime. But remember, you can only benefit if you already have an account.

Can NRIs Invest in Mutual Funds?

Yes, NRIs can absolutely invest in Indian mutual funds. This is where the landscape opens up significantly compared to PPF.

Under FEMA regulations, NRIs have general RBI approval to invest in mutual funds through their NRE or NRO accounts. Here's how it works:

• NRE Account investments: Fully repatriable (both principal and returns can be sent abroad)
• NRO Account investments: Non-repatriable beyond USD 1 million per financial year

👉 Tip: If you're planning to eventually repatriate your mutual fund gains, invest through your NRE account. Check our guide on NRE vs NRO accounts for the complete breakdown.

Important exception for US and Canada-based NRIs: Due to FATCA (Foreign Account Tax Compliance Act) requirements, many Indian AMCs don't accept investments from US or Canadian residents. If you're based in the UAE or other GCC countries, this restriction doesn't apply to you.

PPF vs Mutual Funds: The Complete Comparison

Let's compare these two investment options across the parameters that matter most to NRIs.

Returns Comparison: Real Numbers

Let's see what ₹1.5 lakh invested annually for 15 years looks like in both options.

PPF Returns (at 7.1% compounded annually):

• Total Investment: ₹22.5 lakh
• Maturity Value: ₹40.68 lakh approximately
• Total Interest Earned: ₹18.18 lakh
• Tax Paid: Zero
• Net Return: ₹40.68 lakh

Equity Mutual Fund Returns (at 12% average):

• Total Investment: ₹22.5 lakh
• Expected Value: ₹75.3 lakh approximately
• Total Gains: ₹52.8 lakh
• LTCG Tax (12.5% on gains above ₹1.25 lakh): ₹6.44 lakh approximately
• Net Return: ₹68.86 lakh

The difference? ₹28.18 lakh more with mutual funds over 15 years, even after paying taxes.

👉 Tip: Past performance doesn't guarantee future results. But over any 10-15 year period in India's history, diversified equity funds have outperformed PPF by a significant margin. Use Belong's mutual fund explorer to compare fund options.

Tax Implications for NRIs: What You Actually Pay

This is where NRIs often get confused. Let us simplify it.

PPF Taxation for NRIs

PPF enjoys EEE status:

• Investment: Tax deduction under Section 80C (up to ₹1.5 lakh)
• Interest: Completely tax-free
• Maturity: Completely tax-free

The catch? Section 80C deductions only apply under the old tax regime. And for NRIs with no other India income, this benefit may be irrelevant.

Mutual Fund Taxation for NRIs (Updated July 2024)

The Union Budget 2024 revised mutual fund taxation:

Equity Mutual Funds (held > 1 year):

• LTCG taxed at 12.5% on gains exceeding ₹1.25 lakh
• TDS: 12.5% deducted at source

Equity Mutual Funds (held \< 1 year):

• STCG taxed at 20%
• TDS: 20% deducted at source

Debt Mutual Funds:

• Taxed as per income tax slab (regardless of holding period)
• TDS: 30% for NRIs

Source: Finance (No. 2) Act, 2024

👉 Tip: NRIs can claim TDS refunds by filing ITR if actual tax liability is lower than TDS deducted. Our tax filing service can help you claim these refunds.

The DTAA Advantage

India has Double Taxation Avoidance Agreements (DTAA) with over 90 countries, including UAE. For UAE residents, this is particularly beneficial because UAE has no capital gains tax. You can claim credit for taxes paid in India, effectively avoiding double taxation.

Read our complete India-UAE DTAA guide to understand how this works.

What About Liquidity?

This is a critical consideration that many NRIs overlook.

PPF Liquidity:

• 15-year mandatory lock-in
• Partial withdrawal allowed only from the 7th year
• Loan facility available from 3rd to 6th year (limited to 25% of balance)
• Premature closure allowed after 5 years only for specific reasons (medical emergency, higher education)
• 1% penalty on interest for premature closure

Mutual Fund Liquidity:

• Open-ended funds can be redeemed any business day
• Exit load typically applies within 1 year (usually 1%)
• Proceeds credited within 1-3 business days
• No penalty for redemption (only exit load)

For NRIs in the UAE planning to return to India or needing funds for emergencies, mutual funds offer significantly better flexibility. You can check our guide on what happens when you return to India for account-related changes.

Risk Assessment: Safety vs Growth

Let's be honest about risks.

PPF Risk Profile:

• Principal: 100% guaranteed by Government of India
• Returns: Guaranteed (rate may change quarterly, but your money is safe)
• Default risk: Zero
• Suitable for: Capital preservation, retirement planning

Mutual Fund Risk Profile:

• Principal: Subject to market fluctuations
• Returns: Not guaranteed, can be negative in short term
• Default risk: Regulated by SEBI, funds are held with custodians
• Suitable for: Wealth creation, long-term growth

Here's our take after advising NRIs for years: Risk reduces with time horizon.

A study of Nifty 50 returns shows that over any 10-year rolling period in history, investors have never lost money. The question isn't whether mutual funds are risky. The question is: how long can you stay invested?

👉 Tip: If you're investing for goals 7+ years away, equity mutual funds historically provide better inflation-adjusted returns than PPF. For goals within 3 years, debt funds or FCNR deposits may be more appropriate.

The NRI Problem: Why PPF Falls Short

Here's the reality most articles won't tell you.

For resident Indians, PPF is excellent. It's tax-free, guaranteed, and you can extend it indefinitely. But for NRIs:

1. You can't open a new account – If you don't already have one, this option is closed
2. You can't extend beyond 15 years – Unlike residents who can continue for decades
3. Limited to ₹1.5 lakh annually – Caps your tax-free growth
4. Proceeds go to NRO, not NRE – Creates repatriation complications
5. No currency hedge – Your INR returns depreciate against USD/AED over time

The Rupee has depreciated roughly 3-4% annually against the US Dollar over the past decade. That 7.1% PPF return? It's closer to 3-4% in real USD terms.

Track the INR vs USD movement to understand how this affects your wealth.

A Better Alternative: GIFT City Funds

This is where we see the most NRIs making a switch, and for good reason.

GIFT City, India's first International Financial Services Centre, offers investment options specifically designed for NRIs that solve most PPF limitations:

Tax Benefits of GIFT City Mutual Funds

Under Section 10(4D) of the Income Tax Act, Category III AIFs and qualifying mutual funds in GIFT City enjoy:

• Zero capital gains tax in India for NRIs
• No TDS on redemption
• USD-denominated investments (no currency conversion risk)
• Full repatriation to your country of residence

For UAE-based NRIs with no capital gains tax in UAE, this means 100% tax-free returns.

Explore GIFT City mutual funds available through Belong, including:

• DSP Global Equity Fund
• Tata India Dynamic Equity Fund
• Edelweiss Greater China Equity Fund

GIFT City vs PPF vs Regular Mutual Funds

👉 Tip: The Tata India Dynamic Equity Fund launched in September 2025 accepts just $500 minimum investment, making GIFT City accessible to retail investors for the first time.

When Should You Choose PPF?

Despite the limitations, PPF still makes sense in specific situations:

1. You already have a PPF account with years remaining to maturity
2. You're extremely risk-averse and willing to accept lower returns for guaranteed safety
3. You're using Section 80C benefits under the old tax regime
4. You plan to return to India within the PPF tenure and want to continue as a resident

If any of these apply, continue your PPF. Just don't expect it to be your primary wealth-building tool.

When Should You Choose Mutual Funds?

Mutual funds (either regular or GIFT City) make sense when:

1. You're building wealth for 7+ year goals like retirement or children's education
2. You want liquidity for emergencies or opportunities
3. You're comfortable with market fluctuations in exchange for higher returns
4. You want to invest more than ₹1.5 lakh annually
5. You prefer USD-denominated investments to hedge currency risk

Read our detailed guide on how NRIs can invest in mutual funds for the complete process.

How to Start Investing as an NRI

Here's a step-by-step process:

For Mutual Funds (Regular):

1. Complete NRI KYC with PAN, passport, and overseas address proof
2. Open an NRE or NRO account with an Indian bank
3. Choose funds based on your risk profile and goals
4. Invest via SIP or lump sum

For GIFT City Investments:

1. Verify your NRI/OCI status
2. Complete video KYC (passport, visa, Emirates ID for UAE residents)
3. Select investment avenue (mutual funds, AIFs, or USD FDs)
4. Transfer funds from your NRE or overseas bank account

Download the Belong app to explore GIFT City investment options with just a few taps.

Our Recommendation: A Balanced Approach

After advising hundreds of NRIs, here's what we suggest:

If you have an existing PPF:

• Continue until maturity (don't break it prematurely)
• Don't rely on it as your primary investment
• Supplement with mutual funds for growth

If you don't have PPF:

• Don't worry about missing out. You have better options
• Consider GIFT City mutual funds for tax-free, USD-denominated growth
• Use GIFT City FDs for your safe allocation (currently 5%+ in USD)

Ideal allocation for NRIs aged 35-45:

• 40-50% in equity mutual funds (India + global exposure)
• 20-30% in GIFT City USD FDs (safety + currency hedge)
• 10-20% in debt funds or bonds
• Existing PPF as bonus (if available)

Use our Compliance Compass to check if you're following all necessary rules for your investments.

Final Thoughts

The PPF vs mutual funds debate looks different when you're an NRI. You don't have the same options as resident Indians. The good news? You have options they don't, like tax-free GIFT City investments.

At Belong, we built our platform specifically for NRIs navigating these complex decisions. Whether you're comparing NRI FD rates, exploring GIFT City mutual funds, or checking your residential status, we've got tools designed for your situation.

Your next step:

1. Download the Belong app to explore tax-efficient investment options
2. Join our WhatsApp community where NRIs discuss these topics daily
3. Use our FD comparison tool to compare PPF rates with GIFT City FD rates

The best investment decision is one that's right for your specific situation. Make it an informed one.

Disclaimer: This article is for informational purposes only and should not be considered financial advice. Investment decisions should be made based on individual circumstances after consulting with a qualified advisor. Mutual fund investments are subject to market risks. Read all scheme-related documents carefully before investing.

Sources

1. Ministry of Finance - PPF Interest Rate Notification (December 2025): https://upstox.com/news/personal-finance/investing/public-provident-fund-ppf-interest-rate-january-march-2026/article-187005/
2. Public Provident Fund Scheme, 2019 - Government of India
3. AMFI - Tax Regime for Mutual Funds: https://www.amfiindia.com/investor/knowledge-center-info?zoneName=TaxRegimeForMutualFunds
4. DBS Bank - PPF Rules for NRIs: https://www.dbs.bank.in/in/treasures/articles/nri-hub/live-enriched/new-public-provident-fund-ppf-account-rules-for-nris
5. IFSCA Fund Management Regulations 2022 (Amended 2025)
6. Income Tax Act Section 10(4D) - GIFT City Exemptions
7. Finance (No. 2) Act, 2024 - Capital Gains Tax Revisions