Combine flour, sugar, yeast, nutmeg, and salt in a bowl.
Add in the milk, butter, and egg and stir into a soft dough.
Place donut dough onto a lightly floured surface and knead for a couple of mins until smooth.
Transfer it to a lightly oiled bowl, cover it and let rise in a warm place until doubled in size.
Turn dough out onto a lightly floured surface and roll out to 1/4-inch thickness.
Cut out 7-8 doughnuts using a 3-inch round cutter. Then use a 1-inch round cutter to remove center.
Place the both the donuts and donuts holes on a lightly floured surface, cover loosely with a cloth and let stand in a warm place until doubled in size (approximately 30 mins).
Pre-heat air fryer to 350F / 180C and spray the basket with cooking spray.
Place half of the donuts in single layer inside the air fryer basket and cook for 4-5 mins until golden. Repeat with remaining doughnuts and holes.