FD VS Debt Funds: What should NRIs choose?

Many NRIs who either want to invest in India or want to create a safe corpus enquire about NRI FD VS Debt Mutual Funds and are often confused about what to choose. In this article, we will explore the differences between NRI Fixed Deposits and Debt Oriented Mutual Funds and eventually conclude with which instrument is better for what type of NRI (based on their tax-slabs, risk-appetite, etc.). The debate of FD VS Debt Funds can be easily ruled out when you bring in factors that relate to your needs and requirements. In the next section, let’s clear some air about debt mutual funds for NRIs.

NRI FD VS Debt Funds: What to choose?
Fixed Deposits VS Debt Funds: NRI Investment in India

Can NRI invest in Debt Mutual Funds?

YES! An NRI can easily invest in debt mutual funds and that’s not all you need to know about “Can NRI invest in Debt Mutual Funds?”. Investing in Debt Mutual Funds as an NRI has certain perks as well. In the next few segments as we compare and contrast NRI Fixed Deposit VS Debt Mutual Funds, the benefits of both these instruments will become clearer.

NRI Fixed Deposit VS Debt Mutual Funds

Let’s explore NRI Bank FD VS Debt Mutual Funds to get a clearer perspective as to which instrument suits what type of NRI:

NRI Fixed DepositDebt Mutual Funds
You lend money to bank and have no control over how the bank spends itYou don’t lend money but invest it in instruments you can control (short term, long term, GOI Securities, Bonds, etc.)
There can be risk factors such as bank failures but you have a cover of Rs. 5 Lakh as securityIt is comparatively SAFER as you can choose a scheme as per your requirement and since you can diversify it, it’s all perks!
No volatility of prices (no -ve downward risk)3 Primary Risks:

– Liquidity Risk: If a bond can’t create demand
– Credit Risk: If a bond defaults
– Interest Rate Risk: Interest Rate is inversely proportional to the gains from debt MFs
Very easy to operateNeeds professional advice to build a good debt portfolio as it is trickier than equity funds
Fixed tenures and liquidity can be availed in form of loans (premature closure involves penalties)No tenure and 100% liquid
NRE and FCNR Deposits (used to maintain income earned abroad) aren’t taxable in India. NRO FD (used to maintain India generated income) is taxed at 30% along with surcharge and cess in form of TDSCapital Gains Tax applicable (whether short term or long term) with indexation benefits
NRI Fixed Deposit VS Debt Mutual Funds

Points to Consider:

  • Both NRI FD and Debt Mutual Funds are excellent choices
  • The Liquidity and Credit Risk in case of Debt Mutual Funds are well taken care of by the AMCs you invest in India with
  • Debt Funds are volatile in nature but not same as equity MFs. The deflection ranges between 0.5% to 1% normally
  • For Higher Tax Slab and liquidity focused NRIs: Debt Mutual Funds
  • For Lower Tax Slabs and safety oriented NRIs: NRI Fixed Deposits
  • Preferred FD choices: NRE & FCNR
  • Debt MFs are better and more liquid than NRO FDs and useful for returning NRIs
NRI FD VS Debt Funds

NRI FD VS Debt Funds: The Right Choice

From what we can understand based on the comparison between the instruments NRI FD and Debt Funds it is safe to say that both these instruments are excellent choices for NRIs but when it comes to the question “which is the right choice” then we must consider aspects such as the need/objective of the investor and his/her risk appetite. Conclusively it can be said that:

NRIs who fall in the higher tax bracket and are more liquidity focused must go for Debt Mutual Funds whereas safety oriented NRIs falling under the lower tax brackets must go for NRI Fixed Deposits.

NRI FD VS Debt Funds: Easy Access

SBNRI: NRI Indian Friend

NRI FD VS Debt Funds: Explore SBNRI App for easy Investments

Yes! You read that right. The SBNRI App is already here! You can head over to Google Play Store or the Apple App Store and download SBNRI App to experience the one-stop platform for NRIs concerning their NRI Banking, Investments, Taxation, Real Estate, Home Healthcare and a lot more. Here are some highlights of the SBNRI App:

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SBNRI: NRI Indian Friend

At SBNRI, we understand the day to day struggles NRIs go through. Therefore, we have curated the SBNRI App in such a way that it eliminates all those challenges. Do give it a try and let us know your feedbacks.

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