7 Best Long Term Bond Funds in 2025

To secure your financial future, it is crucial to make sound investments for the long term. There are several ways in which investors can park their money. However, when it comes to investing for the long term, instruments like bonds are a suitable option. Let’s take a look at the best bond funds in India that investors can add to their portfolios for the long term.

Bond Funds

Bond mutual funds are debt funds that invest money in the bonds of high-quality companies. These funds purchase bonds of companies that are financially sound and are expected to be stable in the long term. Certain bond funds also invest in government bonds. As a result, bond funds align with investors who have a low-risk profile and follow a conservative investment philosophy.

As an investor, it is crucial to consider the best bond funds in India before choosing the right fund to invest in.

Here are the top bond mutual funds based on 3-year annualised returns.

(Data as of January 30, 2025)

Overview of Best Long-Term Bond Funds in India 2025

(Please note, the data is as of January 30, 2025)

UTI Dynamic Fund Bond Direct-Growth

• 3Y Annualised Returns – 9.47%
• Assets Under Management (AUM) – Rs 506.98 crore
• 58% allocated to sovereign debt, 28.8% to financial debt, and 13.2% to others.
• Minimum SIP Amount – Rs 500
• Expense Ratio – 0.69%
• Inception Date – January 1, 2013

UTI Medium to Long Duration Fund Direct-Growth

• 3Y Annualised Returns – 8.99%
• AUM – Rs 313.14 crore
• 56.1% allocated to sovereign debt, 20.8% to financial debt, 6.5% to capital goods, and 8.5% to others.
• Minimum SIP Amount – Rs 500
• Expense Ratio –  1.19%%
• Inception Date – January 1, 2013

ICICI Prudential Dynamic Bond Direct Plan-Growth

• 3Y Annualised Returns – 8.63%
• AUM – Rs 1,312.84 crore
• 48.3% allocated to sovereign debt, 18.9% to financial debt, 16.4% to services, and 8.6% to others.
• Minimum SIP Amount – Not Supported
• Expense Ratio –  0.57%
• Inception Date - January 1, 2013

Nippon India Nivesh Lakshya Fund Direct-Growth

• 3Y Annualised Returns – 8.21%
•  AUM – Rs 9,411.44 crore
• 98.3% allocated to sovereign debt and 1.7% to others.
• Minimum SIP Amount – Rs 100
• Expense Ratio –  0.30%
• Inception Date – July 6, 2018

Aditya Birla Sun Life Dynamic Bond Retail Fund Direct-Growth

• 3Y Annualised Returns – 8.14%
• AUM – Rs 1,716.86 crore
• 63.6% allocated to sovereign debt, 26.6% to financial debt, and 9.9% to others.
•  Minimum SIP Amount – Rs 1,000
• Expense Ratio –  0.64%
• Inception Date – January 1, 2013

ICICI Prudential Gilt Fund Fund Direct Plan-Growth

• 3Y Annualised Returns – 7.98%
• AUM – Rs 6,810.77 crore
• 68.8% allocated to sovereign debt, 20.1% to financial debt, and 11% to others.
• Minimum SIP Amount – Rs 1,000
• Expense Ratio –  0.56%
• Inception Date – January 1, 2013

ICICI Prudential All Seasons Bond Fund Direct Plan-Growth

• 3Y Annualised Returns – 7.93%
• AUM – Rs 13,407/28 crore
• 51% allocated to sovereign debt, 28.7% to financial debt, 13.1% to others, and 7.3% to construction debt.
• Minimum SIP Amount – Rs 100
• Expense Ratio –  0.59%
• Inception Date - January 1, 2013

Who Should Invest in Long-Term Bond Funds?

Before deciding to invest in bond mutual funds, investors need to ascertain whether investing in these funds is the right decision for them.

• Investors with long-term investment horizons should opt for bond funds.
• For investors looking to earn a regular income through interest payments, a bond fund may be a viable option.
• Since bond funds are relatively low-risk, a bond mutual fund is a suitable option for more risk-averse investors.

Advantages of Bond Mutual Funds

Here are the key advantages of investing in bond mutual funds:

Lower Risk

Bond funds are a type of debt funds that carry lower risk compared to equity investments. Most bond funds lend money to companies that have a high credit rating and are expected to be financially stable in the future. As a result, the overall risk of these funds is relatively less.

Diversification

Bond funds are a great option for investors looking to diversify their portfolios. Adding debt instruments like bond mutual funds can help an investor create a diverse portfolio and spread out risk across various asset classes.

Regular Income

An investor can generate regular income in the form of interest payments from bond mutual funds. These interest payments can not only help fund the investor’s daily requirements but also be reinvested to further grow the wealth.

Key Points to Remember Before Investing in Bond Funds

• A bond mutual fund’s value is inversely related to interest rates. A rise in interest rates will reduce the value of bond funds and vice versa.
•  A key risk of a bond mutual fund is the credit risk. Investing in bonds that are not rated highly may expose the investor to credit risk as the borrower may default on payments.
• Interest payments from bond mutual funds are subject to the applicable income tax rates. Gains from any capital appreciation attract capital gains tax depending on the duration for which the fund is held.

Conclusion

Investing in the best bond mutual funds is a decent option for investors who have a long-term horizon and want to be risk-averse. A bond fund not only provides regular income in the form of interest but can also help secure one’s financial future. It is important to compare the various bond funds and understand the factors that impact the value of a bond mutual fund.

Disclaimer: This blog is solely for educational purposes. The securities/investments quoted here are not recommendatory.