When I moved back to India in 2017, I had about $85,000 sitting in my US accounts.
The big question was simple: Do I park it all in NRE fixed deposits and sleep easy? Or do I take the mutual fund route and aim for better returns?
I chose a mix. And I’ll tell you why.
Let me answer the questions that kept me up at night. The same ones you’re probably asking right now.
What Exactly Are NRE Fixed Deposits?
NRE stands for Non Resident External.
These are rupee deposits you make using foreign currency. The money comes from your overseas earnings.
Here’s what makes them attractive:
The principal amount is tax free in India. The interest earned is also tax free. You can repatriate both principal and interest without any hassle.
The RBI guarantees these deposits up to ₹5 lakhs per bank under DICGC insurance.
I opened my first NRE FD with HDFC Bank in 2015. It felt safe. Predictable. Boring in a good way.
Bottom line: NRE FDs are the safest parking spot for your foreign earnings in India.
You can read more about opening an NRE account from Dubai if you’re in the Middle East.
Are NRE FD Returns Really That Low?
Let’s talk numbers.
As of October 2025, NRE FD rates hover between 6.5% to 7.5% per annum for tenures of 1 to 5 years.
Compare this to mutual funds. Equity mutual funds have historically delivered 12% to 15% returns over 10+ years.
But here’s the catch.
FD returns are guaranteed. Mutual fund returns are not.
| Investment Type | Average Annual Return | Risk Level |
|---|---|---|
| NRE Fixed Deposit | 6.5% – 7.5% | Very Low |
| Debt Mutual Funds | 7% – 9% | Low to Medium |
| Equity Mutual Funds | 12% – 15% | Medium to High |
When I returned in 2017, I put 40% in NRE FDs and 60% in mutual funds.
The FDs gave me peace of mind. The mutual funds gave me growth.
Can NRIs Invest in Mutual Funds in India?
Yes. Absolutely.
NRIs can invest in Indian mutual funds. But there are some rules.
You need a valid PAN card. You need an NRE or NRO bank account. You need to complete KYC with Indian address proof.
I used my parents’ address when I was still in the US.
The process is simpler now. Most fund houses accept overseas addresses. Platforms like Groww and Zerodha make it easy for NRIs to start investing.
💡 Tip: If you’re a US based NRI, mutual fund taxation can get complicated due to PFIC rules. Consult a cross border tax advisor before investing.
Check out whether NRIs can invest in mutual funds for detailed guidelines.
What Are the Tax Implications for NRE FDs vs Mutual Funds?
This is where it gets interesting.
NRE FD interest is completely tax free in India. No TDS. No tax filing needed for this income.
But mutual funds? Different story.
For equity mutual funds, if you sell within 1 year, short term capital gains are taxed at 20%. If you sell after 1 year, long term capital gains above ₹1.25 lakhs are taxed at 12.5%.
For debt mutual funds, both short term and long term gains are taxed at your income tax slab rate.
Here’s what I did in 2018.
I kept my emergency fund in NRE FDs. Zero tax. Instant access.
I invested the rest in equity mutual funds through SIPs. The returns more than made up for the tax hit.
📊 Data Point: According to AMFI, NRI investments in Indian mutual funds grew by 23% in 2024 compared to 2023. More NRIs are choosing growth over safety.
For detailed tax planning, read about Indian tax rules for NRIs with foreign income.
Is Repatriation Easier with NRE FDs or Mutual Funds?
NRE FDs win here. Hands down.
You can repatriate both principal and interest freely. No questions asked. No documentation nightmares.
With mutual funds, it depends on which account you used to invest.
If you invested through an NRE account, repatriation is allowed. If you used an NRO account, you can repatriate up to $1 million per financial year. But you need Form 15CA and 15CB from a CA.
I faced this in 2019 when I wanted to send money back to my US account.
My NRE FD proceeds moved in 2 days. My mutual fund redemption from NRO took 3 weeks because of paperwork.
Learn more about transferring money from India to USA without tax.
Which Is Better for Emergency Funds?
NRE FDs. No debate.
Emergency funds need three things. Safety. Liquidity. Predictability.
FDs give you all three.
Mutual funds, especially equity ones, can be volatile. You don’t want to redeem when the market is down 20%.
When my mom fell sick in 2020, I needed ₹8 lakhs immediately.
I broke an NRE FD. Got the money in 24 hours. Zero stress.
If that money was in equity funds during March 2020 crash, I would have lost 35% of value.
For long term wealth building? Mutual funds.
For emergency backup? NRE FDs.
What About Inflation Protection?
This is where mutual funds shine.
NRE FD returns of 7% barely beat inflation. In 2024, India’s average inflation was around 5.5%.
Your real return? Just 1.5%.
Equity mutual funds historically deliver double digit returns. They’ve beaten inflation by a comfortable margin.
| Scenario | NRE FD @ 7% | Equity MF @ 13% |
|---|---|---|
| Initial Investment | ₹10,00,000 | ₹10,00,000 |
| Value After 10 Years | ₹19,67,151 | ₹33,94,564 |
| Inflation Adjusted (5%) | ₹12,06,095 | ₹20,82,892 |
The difference is massive.
I learned this the hard way in 2018. I had too much in FDs. My portfolio grew slower than my friends who invested in mutual funds.
I rebalanced in 2019. Started SIPs. The results over 5 years speak for themselves.
Check out the best investment options in India for a broader perspective.
Can I Do Both? What’s the Right Mix?
This is what I recommend. And what I personally follow.
Keep 20% to 30% in NRE FDs. This covers emergencies and short term goals.
Put 70% to 80% in mutual funds. Mix of equity and debt based on your risk appetite.
Here’s my current split as of 2025:
25% in NRE FDs across 3 banks 50% in equity mutual funds (large cap, mid cap, index) 15% in debt mutual funds 10% in international funds and gold
This mix gives me safety plus growth.
When you’re starting out, be conservative. As you understand markets better, increase equity allocation.
💡 Tip: Diversify your NRE FDs across banks. Don’t put everything in one basket. DICGC insurance covers only ₹5 lakhs per bank.
Read about how NRIs can invest money after returning to India for comprehensive guidance.
What Happens to These Investments After I Move Back?
Great question. This is crucial.
When you become a resident again, you can’t maintain NRE accounts. They need to be converted to resident accounts.
But here’s the good news.
You can convert your NRE account to an RFC (Resident Foreign Currency) account. This lets you keep your foreign currency deposits even as a resident.
Your mutual fund investments continue without any change. No forced redemption. No paperwork drama.
I converted my accounts in 2017 when I moved back. The process took 2 weeks with HDFC and Axis.
For mutual funds, I just updated my status from NRI to resident. Done.
My Take: Plan your investment strategy assuming you’ll return to India someday. Makes the transition smoother.
Learn about converting NRE/NRO accounts to resident savings accounts.
Which Banks Offer the Best NRE FD Rates?
Rates keep changing. But some banks consistently offer better rates.
As of October 2025, here’s what I’m seeing:
| Bank | 1 Year Rate | 3 Year Rate | 5 Year Rate |
|---|---|---|---|
| HDFC Bank | 6.75% | 7.00% | 7.25% |
| ICICI Bank | 6.85% | 7.10% | 7.30% |
| Axis Bank | 7.00% | 7.25% | 7.40% |
Small finance banks like Ujjivan and Equitas often offer 0.5% to 1% higher rates.
But I prefer large banks for safety and service quality.
I split my FDs between HDFC, ICICI and Axis. All three have solid NRI services.
Check top NRI savings accounts for banking options.
Should I Use FCNR or NRE for Fixed Deposits?
Both are tax free. Both allow repatriation.
The key difference? Currency.
NRE deposits are in Indian rupees. FCNR deposits are in foreign currency (USD, GBP, EUR, etc.).
With FCNR, you eliminate exchange rate risk. Your deposit value doesn’t fluctuate with rupee movements.
But FCNR rates are usually lower. Around 4% to 5% for USD deposits.
I use NRE for better returns. I’m comfortable with rupee exposure since I plan to retire in India.
If you’re uncertain about returning, FCNR is safer.
“Think of it like this: NRE is for the India committed. FCNR is for the fence sitters.”
Learn more about FCNR rates and comparisons.
What Are the Risks with Mutual Funds That NRE FDs Don’t Have?
Let’s be honest. Mutual funds come with baggage.
Market risk is the big one. Your investment value can drop 20% to 30% in a bad year.
In March 2020, my equity funds were down 35%. It recovered by December. But those 9 months were stressful.
Then there’s timing risk. If you need money when markets are down, you’re forced to book losses.
Fund manager risk exists too. A bad manager can underperform the index significantly.
NRE FDs have zero market risk. Zero timing risk. Zero fund manager risk.
The tradeoff? Lower returns.
📌 Fact File: Market Volatility
- 2008: Sensex fell 52%
- 2020: Sensex fell 38% (recovered in 8 months)
- 2022: Sensex fell 15%
- Long term average return: 12-15% annually
Source: BSE India
Read about mutual funds or stocks to invest as an NRI returnee.
How Do I Start Investing in Mutual Funds as an NRI?
Simpler than you think.
First, get your NRI status verified. Update your bank accounts to NRE or NRO.
Second, complete KYC. You can do this online now. CAMS and Karvy handle KYC for most fund houses.
Third, choose a platform. I recommend Zerodha or Groww. Both are NRI friendly.
Fourth, start with index funds or large cap equity funds. Keep it simple initially.
I started with Nifty 50 index fund in 2016. Added mid cap and small cap funds later.
Monthly SIPs work best. Removes emotion from investing.
💡 Tip: Don’t try to time the market. Start small. Increase SIP amounts as you gain confidence.
Check best apps to invest in mutual funds in India for platform comparisons.
What If I Need Money Urgently? Can I Break FDs or Redeem Mutual Funds Quickly?
Both are fairly liquid. But with differences.
NRE FDs can be broken anytime. You lose some interest as penalty. Usually 1% of the rate.
The money hits your account in 24 to 48 hours.
Mutual funds take 2 to 4 working days for equity funds. Debt funds are slightly faster.
Liquid funds can be redeemed within 24 hours for amounts up to ₹50,000 or ₹2 lakhs depending on the fund.
In 2021, I needed ₹5 lakhs for my son’s school admission.
I redeemed from a large cap fund. Money came in 3 working days.
Could have been faster with liquid funds. But I didn’t have any at that time.
Should I Convert My Savings to INR Before Investing?
This depends on your timeline.
If you’re investing for more than 5 years, convert during favorable exchange rates.
I converted my dollars in batches between 2016 and 2018. Got rates between 65 and 70 per dollar.
If you’re not sure about your India plans, keep money in FCNR deposits. Or invest in US markets through apps that let you invest in US stocks from India.
The rupee has been depreciating long term. From 45 in 2008 to 83 in 2024.
But timing currency conversion is tough. Don’t overthink it.
Learn about converting USD to INR before moving.
What Returns Can I Realistically Expect from Mutual Funds?
Let’s set realistic expectations.
Large cap equity funds: 10% to 12% annually over 10+ years Mid cap equity funds: 12% to 15% annually over 10+ years Small cap equity funds: 14% to 18% annually over 10+ years (with higher volatility) Debt funds: 7% to 9% annually
These are historical averages. Future returns may differ.
Some years you’ll get 25%. Some years you’ll lose 15%.
The key is staying invested through ups and downs.
My equity funds gave me 18% returns from 2017 to 2021. Then came 2022 with flat returns. 2023 bounced back with 22%.
Average over 7 years? Around 14%.
Better than any FD. But required patience and stomach for volatility.
📊 Data Point: According to AMFI, equity mutual funds have delivered 11.8% CAGR over the last 15 years (2009-2024), while debt funds gave 7.2% CAGR.
Source: AMFI India
How Much Should I Keep in NRE FDs vs Mutual Funds Based on My Age?
Age matters. A lot.
Here’s a rough thumb rule I follow:
Age 25 to 35:
- NRE FDs: 15% to 20%
- Equity Funds: 70% to 75%
- Debt Funds: 10% to 15%
Age 35 to 45:
- NRE FDs: 20% to 25%
- Equity Funds: 60% to 65%
- Debt Funds: 15% to 20%
Age 45 to 55:
- NRE FDs: 30% to 35%
- Equity Funds: 40% to 50%
- Debt Funds: 20% to 30%
Age 55+:
- NRE FDs: 40% to 50%
- Equity Funds: 20% to 30%
- Debt Funds: 30% to 40%
I’m 41 now. My allocation is roughly 25% FDs, 55% equity, 20% debt.
As I get closer to 50, I’ll shift more to FDs and debt.
For comprehensive planning, read what NRIs must do before retiring in India.
What Mistakes Should I Avoid?
I’ve made plenty. Learn from them.
Mistake 1: Putting everything in NRE FDs for “safety.” I did this in 2015. Missed 3 years of equity bull run.
Mistake 2: Chasing last year’s top performing funds. Returns don’t repeat. I learned this the hard way in 2018.
Mistake 3: Redeeming equity funds during market crash. March 2020 tested my patience. I held on. Good decision.
Mistake 4: Not diversifying across banks for FDs. Keep it spread. DICGC covers only ₹5 lakhs per bank.
Mistake 5: Ignoring tax implications. Cost me extra in 2019. Always factor in tax before redeeming.
My Take: Most NRIs over allocate to safety and under allocate to growth. Find your balance based on goals, not fear.
Should I Hire a Financial Advisor?
If you’re managing less than ₹50 lakhs, DIY works fine.
Use direct mutual funds through platforms like Zerodha or Groww. Save on commission.
Beyond ₹50 lakhs, consider a fee only advisor. Not commission based agents.
I manage my portfolio myself. But I consult an advisor once a year for a second opinion.
Cost me ₹15,000 in 2024. Worth it for the peace of mind.
Look for SEBI registered advisors. Check credentials.
Read about best investment advisory agencies for guidance.
Final Verdict: NRE FDs or Mutual Funds?
Here’s what I tell everyone who asks.
Use NRE FDs for stability. Emergency funds. Short term goals. Money you can’t afford to lose.
Use mutual funds for growth. Long term wealth. Retirement corpus. Money you won’t need for 5+ years.
The answer isn’t either or. It’s both.
Your mix depends on age, risk appetite, goals, and how soon you need the money.
When I returned in 2017, I wish someone had told me this clearly.
Would have saved me from keeping too much in FDs initially.
Experiment. Adjust. Find what helps you sleep at night.
If you’re still confused, post your situation in the Back to India Facebook group. Real people. Real experiences. Real advice.
TL;DR: Quick Takeaways
- NRE FDs offer 6.5% to 7.5% returns with zero risk and full repatriation
- Equity mutual funds deliver 12% to 15% historically but with market volatility
- NRE FD interest is completely tax free; mutual funds have capital gains tax
- Keep 20-30% in NRE FDs for emergencies and stability
- Invest 70-80% in mutual funds for inflation beating returns
- Repatriation is easier with NRE FDs compared to mutual funds
- Age and goals should determine your exact allocation
- Don’t put everything in FDs for safety or everything in equity for returns
- Diversify NRE FDs across banks (DICGC covers only ₹5 lakhs per bank)
- Start mutual fund SIPs early; time in market beats timing the market
- Convert NRE accounts to RFC when you return to India
- Use direct mutual funds to save on commissions
- Consult a SEBI registered advisor for portfolios above ₹50 lakhs
Data Sources
- NRE Fixed Deposit Rates: HDFC Bank, ICICI Bank, Axis Bank
- Mutual Fund Returns: AMFI India
- DICGC Insurance: Reserve Bank of India
- Inflation Data: Ministry of Statistics, Government of India
- Market Performance: BSE India
- Tax Regulations: Income Tax Department
- NRI Investment Guidelines: RBI FEMA Guidelines