Debt funds are mutual funds that invest in money market instruments like bonds, treasury bills, etc.

Unlike equity mutual funds, they are associated with a lot less risk. Their returns are also much more stable when compared to equity funds.

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When investing for a short period of time, like less than 2 years, debt funds make very good investments.

Best Debt Funds - 2019: At a Glance
Fund Name1Y3Y5YCategoryRisk
Axis Liquid Fund - Direct - Growth7.48%NANADebt
(Liquid)
Low
Indiabulls Liquid Fund - Direct - Growth7.37%7.41%8.02%Debt
(Liquid)
Low
L&T Short Term Bond Fund - Direct - Growth6.42%7.48%8.43%Debt
(Short Duration)
Moderately Low
Franklin India Low Duration Fund - Direct - Growth8.39%9.15%9.59%Debt
(Low Duration )
Moderate
ICICI Prudential All Seasons Bond Fund - Direct - Growth5.98%9.88%11.17%Debt
(Dynamic)
Moderate
Kotak Money Market Scheme - Direct - Growth7.6%NANADebt
(Liquid)
Low
Principal Cash Management Fund - Direct - Growth-1.74%4.21%6.05%Debt
(Liquid)
Low
Franklin India Ultra Short Bond Fund - Direct - Growth8.5%8.95%9.35%Debt
(Ultra Short Duration)
Moderate
HDFC Short Term Debt Fund - Direct - Growth6.55%7.71%8.53%Debt
(Short Duration)
Moderately Low
Aditya Birla Sun Life Short Term Opportunities Fund - Direct - Growth6.43%8.4%9.2%Debt
(Short Duration)
Moderate

Best Debt Funds in India – Details

1.Axis Liquid Fund

axis liquid fund

This fund is a liquid fund, as the name suggests. Liquid funds are ideal for investing anywhere from a few days to a few months.

The returns they give is better than savings bank account. This is exactly why liquid funds are a good alternative to keeping money in the savings bank account.

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Axis Liquid fund is one of the top performing liquid funds that has given returns of around 8% over the last 5 years – which is a good return.

Even in the last year, the rate of return is much higher than what you’d get from a savings account.

Know about the 10 debt funds that gave better returns than FDs

2.Indiabulls Liquid Fund

indiabulls liquid fund

The reason why liquid funds are considered a good alternative to keeping money in the savings account is because redeeming money from a liquid fund is a very fast procedure.

Unlike other other types of funds, redeeming money from a liquid fund takes only about a day or two.

Indiabulls Liquid Fund is another good liquid fund on this list. It has given a return of 8.25% over the last 5 years and 6.71% over the last one year.

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3.L&T Low Duration Fund

l&t short term income fund

This fund has returned around 9% in the last 5 years and 8% in the last 1 year.

L&T Short Term Income Fund is a short term fund. These funds are a good investment options if you wish to invest for a period of a few months to 1 year.

Short term funds are a good investment option for those wishing to not expose themselves to market risk.

They are also used to store money until an investment decision is made.

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4.Franklin India Low Duration Fund 

franklin india low duration fund

Franklin India Low Duration Fund is an ultra short term fund.

It has given a very high return of 9.49% over the last 5 years and 8.20% in the last 1 year.

It is ideal for investing for a period of a few months to a year.

5.ICICI Prudential Long Term Plan

icici prudential long term plan

This fund is a dynamic fund – which means it is a fund that switches aggressively between short term and long term investments.

This allows the fund to leverage differences between the two types of investments.

7 Reasons Why SIP in Debt Funds Is Better Than Starting RD (2018)

ICICI Prudential Long Term Investment Plan has given a return of 4.43% in the last 1 year and an incredible 11.24% over the last 5 years.

Bonus List: 5 More Top Debt Funds

6. Kotak Money Market Scheme (Liquid Fund)

kotak floater short term7. Principal Cash Managementt Fund (Liquid Fund)

principal cash mgmt fund5 Reasons Why Debt Funds Are Better Than Fixed Deposits

8.Franklin India Ultra Short Bond Fund

franklin india ultra short term bond fund

9.HDFC Short Term Debt Fund

hdfc short term fund

10.Aditya Birla Sun Life Corporate Bond Fund 

aditya birla sl short term fund

Groww 30: Top funds in every mutual fund category. 

Happy investing!

Disclaimer: the views expressed here are those of the author. Mutual funds are subject to market risks. Please read the offer document before investing.