Debt funds invest in fixed-income bonds and securities issued by the government and companies. These fixed-income securities could be corporate bonds, treasury bills, government securities, money market instruments, etc.

Debt funds are the least risky mutual funds, especially when compared to equities. These funds can give an investor the scope to deliver better returns when compared to traditional saving products.

So, investors of debt funds can be assured the least volatility and steady income. Have a look at the best debt funds the market has to offer in 2025.

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List of Debt Mutual Funds in India

Fund Name	Category	Risk	NAV	Expense Ratio	1Y Returns	3Y Returns	5Y Returns	7Y Returns	10Y Returns	Rating	Fund Size (in Cr)	Exit Load
Aditya Birla Sun Life Liquid Fund	Debt	Moderate	448.07	0.21	6.4%	7.0%	6.2%	5.8%	6.2%	4	₹43,022	Exit load of 0.0070% if redeemed within 1 day, 0.0065% if redeemed within 2 days, 0.0060% if redeemed within 3 days, 0.0055% if redeemed within 4 days, 0.0050% if redeemed within 5 days, 0.0045% if redeemed within 6 days. See more
Edelweiss Liquid Direct-Growth	Debt	Low to Moderate	3,586.71	0.1	6.3%	7.0%	6.1%	5.8%	6.2%	5	₹8,877	Exit load of 0.0070% if redeemed within 1 day, 0.0065% if redeemed within 2 days, 0.0060% if redeemed within 3 days, 0.0055% if redeemed within 4 days, 0.0050% if redeemed within 5 days, 0.0045% if redeemed within 6 days. See more
ICICI Prudential Short Term Fund	Debt	Moderate	68.89	0.44	6.1%	7.9%	7.1%	7.9%	8.0%	5	₹20,688	-
ICICI Prudential Liquid Fund	Debt	Low to Moderate	410.43	0.2	6.3%	7.0%	6.1%	5.7%	6.2%	3	₹42,887	Exit load of 0.0070% if redeemed within 1 day, 0.0065% if redeemed within 2 days, 0.0060% if redeemed within 3 days, 0.0055% if redeemed within 4 days, 0.0050% if redeemed within 5 days, 0.0045% if redeemed within 6 days. See more
HDFC Short Term Debt Fund	Debt	Moderate	34.52	0.4	5.5%	7.5%	6.5%	7.5%	7.5%	4	₹14,727	-
JioBlackRock Liquid Fund	Debt	Low to Moderate	1,051.77	0.1	--	--	--	--	--	--	₹5,997	Exit load of 0.0070% if redeemed within 1 day, 0.0065% if redeemed within 2 days, 0.0060% if redeemed within 3 days, 0.0055% if redeemed within 4 days, 0.0050% if redeemed within 5 days, 0.0045% if redeemed within 6 days. See more
Axis Liquid Direct Fund	Debt	Moderate	3,085.85	0.11	6.4%	7.0%	6.1%	5.8%	6.2%	4	₹30,187	Exit load of 0.0070% if redeemed within 1 day, 0.0065% if redeemed within 2 days, 0.0060% if redeemed within 3 days, 0.0055% if redeemed within 4 days, 0.0050% if redeemed within 5 days, 0.0045% if redeemed within 6 days. See more
SBI Liquid Fund	Debt	Moderate	4,335.66	0.2	6.3%	7.0%	6.1%	5.7%	6.1%	2	₹57,891	Exit load of 0.0070% if redeemed within 1 day, 0.0065% if redeemed within 2 days, 0.0060% if redeemed within 3 days, 0.0055% if redeemed within 4 days, 0.0050% if redeemed within 5 days, 0.0045% if redeemed within 6 days. See more
Nippon India Liquid Fund	Debt	Moderate	6,790.63	0.2	6.3%	7.0%	6.1%	5.8%	6.2%	3	₹25,755	Exit load of 0.0070% if redeemed within 1 day, 0.0065% if redeemed within 2 days, 0.0060% if redeemed within 3 days, 0.0055% if redeemed within 4 days, 0.0050% if redeemed within 5 days, 0.0045% if redeemed within 6 days. See more
ICICI Prudential Corporate Bond Fund	Debt	Moderate	32.66	0.36	5.5%	7.5%	6.7%	7.5%	7.6%	5	₹30,212	-
HDFC Liquid Direct Plan-Growth	Debt	Moderate	5,446.16	0.21	6.3%	7.0%	6.1%	5.7%	6.1%	3	₹53,982	Exit load of 0.0070% if redeemed within 1 day, 0.0065% if redeemed within 2 days, 0.0060% if redeemed within 3 days, 0.0055% if redeemed within 4 days, 0.0050% if redeemed within 5 days, 0.0045% if redeemed within 6 days. See more
Parag Parikh Liquid Fund	Debt	Low to Moderate	1,534.40	0.1	6.2%	6.7%	5.8%	5.4%	--	1	₹5,170	Exit load of 0.0070% if redeemed within 1 day, 0.0065% if redeemed within 2 days, 0.0060% if redeemed within 3 days, 0.0055% if redeemed within 4 days, 0.0050% if redeemed within 5 days, 0.0045% if redeemed within 6 days. See more
SBI Short Term Debt Fund	Debt	Moderate	35.58	0.41	5.3%	7.3%	6.3%	7.1%	7.2%	4	₹14,580	-
Aditya Birla Sun Life Medium Term Plan Direct-Growth	Debt	Moderately High	46.49	0.84	8.7%	10.3%	12.6%	10.1%	9.3%	1	₹3,078	Exit load of 1%, if redeemed within 1 Year.
Nippon India Ultra Short Duration Fund	Debt	Moderate	4,692.31	0.39	6.9%	7.6%	7.5%	6.4%	6.7%	1	₹9,511	-
View All

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Who Should Invest in Debt Mutual Funds?

The individuals who can find debt funds the most suitable are:

Risk-Averse Investors

As previously mentioned, debt funds are most suitable for investors who are looking forward to investing on the safer side of mutual funds. They are, so far, the most safe mutual funds an individual can choose.

Since they invest in fixed-income underlying assets (such as bonds, treasury bills, and more), they can be a fund an investor faces the least risks with. Market fluctuations and other factors take a very slight toll on these funds, making them most suitable for risk-averse investors.

Investors Who are Looking for Greater Returns than Bank Deposits

Bank deposits are sought by investors who do not want to deal with market risks and have stable returns. In the case of debt funds, they offer higher percentages of stable returns than bank deposits and are also the least affected funds when it comes to market conditions.

Short or Medium Term Investors

Individuals can invest in these funds for the short term since they are known to perform well in a short duration.

Investors Who Seek Moderate Returns

Unlike equity funds, the risks of debt funds are moderate, and so are the returns that come with it. This means the returns coming from debt funds are low when compared to equity funds. Investors who are comfortable availing of a below-moderate return from their investment can instantly choose one of these funds to start their investment.

Factors to Consider While Investing in Debt Funds

The certain factors to be considered while finding the top debt funds for your portfolio are-

Taxes: You will earn reasonable returns from debt fund investments, but these returns will be taxed. The taxes can chip off your investment returns, so it is essential to be aware of these taxes for your benefit.
Selecting Funds Based on Tenure: Debt funds come in various forms, such as liquid funds and more. You will have to choose a fund based on your investment tenure. For very short investments (days or weeks), you will have to invest in liquid or overnight funds to witness the highest benefits. For investments that range from 1 year or more, you can choose short-term funds, thus, you will have to be aware of these factors.

Major Advantages

Investors can reap the following benefits by investing in the best debt mutual funds:

High liquidity: One of the key benefits of fixed income funds is liquidity. Investors can redeem their units any time after their purchase. The amount will reflect in their bank account within a day.

Partial withdrawals: One can withdraw partially from their funds to meet necessary requirements without impacting the rest of the investment.

Flexibility in investment: Investors can either buy units in a lump-sum or choose to invest via SIP.

Provides stability: Since a major portion of the investment corpus is allocated to debt instruments, stock market fluctuations mostly do not impact the returns.

Tax-efficient: Debt funds are more tax-efficient than traditional investment options, such as bank fixed deposits. Income from debt funds is taxed when an investor chooses to redeem his/her units. However, income from bank FD is taxed every year. Debt funds also attract indexation benefits if sold after 3 years from the purchase date.

Credit quality rating: The debt instruments are rated by credit rating agencies in India. Before investing in these funds, individuals can check the credit quality rating to get an idea of the risk level associated with a scheme.

Risks Involved While Investing in Debt Funds

During the research for the best debt funds to invest in 2025, ensure to check the risks mentioned below-

Interest Rate Risks: Interest rate risk is analysed by market interest rates, which fund managers have little control over. An unexpected increase in interest rates can wipe out months of capital profits, particularly for long-term funds. Although the best performing debt funds are termed to be the safest, they are still exposed to the market, which brings this factor.
Credit Risk: Credit risk originates from the chances of the debt fund's bonds defaulting on interest and principal payments. The downgrade of IL&FS and the accompanying value decrease for some debt funds have demonstrated that even liquid funds are not completely immune to the consequences of credit default.

Exit Load: Though these funds perform well in short to medium-term periods, they can bring in an exit load when you leave the fund, which you will need to be aware of before selling the fund.

FAQs

Q1. What is meant by a debt mutual fund, and how does it work?

A debt mutual fund is one where the investment portfolio is done in securities and bonds that are known to provide a fixed income.

Q2. Is a debt fund investment better than FDs?

Historically, debt funds have outperformed bank deposits, such as FDs, for the same tenure. Additionally, the low risks of these funds also make it a good investment choice for investors with the risk-tolerance of choosing bank FDs.

Q3. What are the risks of debt funds?

The risks of debt funds are minute, but they are not risk-free. Given that they invest in secure underlying assets such as bonds and securities, with the least investment percentage in equities, it makes them a highly safe investment instrument for risk-averse investors.

Q4. Can I make a SIP investment in debt funds?

Yes, you can easily start with a systematic investment plan, even for debt funds, based on your financial goals.

Q5. Who can invest in debt funds?

The kind of investors who can start investing in a debt fund are - short-term investors and investors with a low-risk appetite.

Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.

Let's have a closer look

Now let us jump and check about these top 15 mutual fund schemes.

Aditya Birla Sun Life Liquid Fund Direct Growth

Fund Performance: The Aditya Birla Sun Life Liquid Fund has given 7.05% annualized returns in the past three years and 6.15% in the last 5 years. The Aditya Birla Sun Life Liquid Fund comes under the Debt category of Aditya Birla Sun Life Mutual Funds.

Minimum Investment Amount: The minimum amount required to invest in Aditya Birla Sun Life Liquid Fund via lump sum is ₹100 and via SIP is ₹100.

Min Investment Amt	₹100
AUM	₹43,022Cr
1Y Returns	6.4%

Edelweiss Liquid Direct Growth

Fund Performance: The Edelweiss Liquid Direct-Growth has given 7.05% annualized returns in the past three years and 6.14% in the last 5 years. The Edelweiss Liquid Direct-Growth comes under the Debt category of Edelweiss Mutual Funds.

Minimum Investment Amount: The minimum amount required to invest in Edelweiss Liquid Direct-Growth via lump sum is ₹100 and via SIP is ₹100.

Min Investment Amt	₹100
AUM	₹8,877Cr
1Y Returns	6.3%

ICICI Prudential Short Term Fund Direct Plan Growth

Fund Performance: The ICICI Prudential Short Term Fund has given 7.87% annualized returns in the past three years and 7.07% in the last 5 years. The ICICI Prudential Short Term Fund comes under the Debt category of ICICI Prudential Mutual Funds.

Minimum Investment Amount: The minimum amount required to invest in ICICI Prudential Short Term Fund via lump sum is ₹5,000 and via SIP is ₹1,000.

Min Investment Amt	₹5,000
AUM	₹20,688Cr
1Y Returns	6.1%

ICICI Prudential Liquid Fund Direct Plan Growth

Fund Performance: The ICICI Prudential Liquid Fund has given 6.98% annualized returns in the past three years and 6.07% in the last 5 years. The ICICI Prudential Liquid Fund comes under the Debt category of ICICI Prudential Mutual Funds.

Minimum Investment Amount: The minimum amount required to invest in ICICI Prudential Liquid Fund via lump sum is ₹99 and via SIP is ₹99.

Min Investment Amt	₹99
AUM	₹42,887Cr
1Y Returns	6.3%

HDFC Short Term Debt Fund Direct Plan Growth

Fund Performance: The HDFC Short Term Debt Fund has given 7.53% annualized returns in the past three years and 6.54% in the last 5 years. The HDFC Short Term Debt Fund comes under the Debt category of HDFC Mutual Funds.

Minimum Investment Amount: The minimum amount required to invest in HDFC Short Term Debt Fund via lump sum is ₹100 and via SIP is ₹100.

Min Investment Amt	₹100
AUM	₹14,727Cr
1Y Returns	5.5%

JioBlackRock Liquid Fund Direct Growth

Fund Performance: The JioBlackRock Liquid Fund comes under the Debt category of JioBlackRock Mutual Funds.

Minimum Investment Amount: The minimum amount required to invest in JioBlackRock Liquid Fund via lump sum is ₹500 and via SIP is ₹500.

Min Investment Amt	₹500
AUM	₹5,997Cr
1Y Returns	--

Axis Liquid Direct Fund Growth

Fund Performance: The Axis Liquid Direct Fund has given 7.04% annualized returns in the past three years and 6.13% in the last 5 years. The Axis Liquid Direct Fund comes under the Debt category of Axis Mutual Funds.

Minimum Investment Amount: The minimum amount required to invest in Axis Liquid Direct Fund via lump sum is ₹100 and via SIP is ₹100.

Min Investment Amt	₹100
AUM	₹30,187Cr
1Y Returns	6.4%

SBI Liquid Fund Direct Plan Growth

Fund Performance: The SBI Liquid Fund has given 6.95% annualized returns in the past three years and 6.06% in the last 5 years. The SBI Liquid Fund comes under the Debt category of SBI Mutual Funds.

Minimum Investment Amount: The minimum amount required to invest in SBI Liquid Fund via lump sum is ₹500 and via SIP is ₹500.

Min Investment Amt	₹500
AUM	₹57,891Cr
1Y Returns	6.3%

Nippon India Liquid Fund Direct Growth

Fund Performance: The Nippon India Liquid Fund has given 7.02% annualized returns in the past three years and 6.11% in the last 5 years. The Nippon India Liquid Fund comes under the Debt category of Nippon India Mutual Funds.

Minimum Investment Amount: The minimum amount required to invest in Nippon India Liquid Fund via lump sum is ₹1,000 and via SIP is ₹100.

Min Investment Amt	₹1,000
AUM	₹25,755Cr
1Y Returns	6.3%

ICICI Prudential Corporate Bond Fund Direct Plan Growth

Fund Performance: The ICICI Prudential Corporate Bond Fund has given 7.53% annualized returns in the past three years and 6.67% in the last 5 years. The ICICI Prudential Corporate Bond Fund comes under the Debt category of ICICI Prudential Mutual Funds.

Minimum Investment Amount: The minimum amount required to invest in ICICI Prudential Corporate Bond Fund via lump sum is ₹100 and via SIP is ₹100.

Min Investment Amt	₹100
AUM	₹30,212Cr
1Y Returns	5.5%

HDFC Liquid Direct Plan Growth

Fund Performance: The HDFC Liquid Direct Plan-Growth has given 6.97% annualized returns in the past three years and 6.07% in the last 5 years. The HDFC Liquid Direct Plan-Growth comes under the Debt category of HDFC Mutual Funds.

Minimum Investment Amount: The minimum amount required to invest in HDFC Liquid Direct Plan-Growth via lump sum is ₹100 and via SIP is ₹100.

Min Investment Amt	₹100
AUM	₹53,982Cr
1Y Returns	6.3%

Parag Parikh Liquid Fund Direct Growth

Fund Performance: The Parag Parikh Liquid Fund has given 6.71% annualized returns in the past three years and 5.81% in the last 5 years. The Parag Parikh Liquid Fund comes under the Debt category of PPFAS Mutual Funds.

Minimum Investment Amount: The minimum amount required to invest in Parag Parikh Liquid Fund via lump sum is ₹5,000 and via SIP is ₹1,000.

Min Investment Amt	₹5,000
AUM	₹5,170Cr
1Y Returns	6.2%

SBI Short Term Debt Fund Direct Growth

Fund Performance: The SBI Short Term Debt Fund has given 7.32% annualized returns in the past three years and 6.31% in the last 5 years. The SBI Short Term Debt Fund comes under the Debt category of SBI Mutual Funds.

Minimum Investment Amount: The minimum amount required to invest in SBI Short Term Debt Fund via lump sum is ₹5,000 and via SIP is ₹500.

Min Investment Amt	₹5,000
AUM	₹14,580Cr
1Y Returns	5.3%

Aditya Birla Sun Life Medium Term Plan Direct Growth

Fund Performance: The Aditya Birla Sun Life Medium Term Plan Direct-Growth has given 10.32% annualized returns in the past three years and 12.58% in the last 5 years. The Aditya Birla Sun Life Medium Term Plan Direct-Growth comes under the Debt category of Aditya Birla Sun Life Mutual Funds.

Minimum Investment Amount: The minimum amount required to invest in Aditya Birla Sun Life Medium Term Plan Direct-Growth via lump sum is ₹1,000 and via SIP is ₹1,000.

Min Investment Amt	₹1,000
AUM	₹3,078Cr
1Y Returns	8.7%

Nippon India Ultra Short Duration Fund Direct Growth

Fund Performance: The Nippon India Ultra Short Duration Fund has given 7.59% annualized returns in the past three years and 7.53% in the last 5 years. The Nippon India Ultra Short Duration Fund comes under the Debt category of Nippon India Mutual Funds.

Minimum Investment Amount: The minimum amount required to invest in Nippon India Ultra Short Duration Fund via lump sum is ₹100 and via SIP is ₹100.