Best Debt Mutual Funds

A debt fund is an investment instrument wherein the capital is invested primarily in fixed-income investments. These are predominantly treasury bills, government securities, corporate bonds and other similar money market instruments.

Debt funds, alternatively known as fixed-income funds or credit funds, come under the fixed income asset category of mutual funds. They are low-risk investments vehicles and are comparatively more secure than equity funds which are subject to volatile market forces.

There are several avenues through which you can invest in the best performing debt funds for higher returns. It can be long-term or short-term bonds, monthly income plans (MIPs), floating-rate debt, money market instruments, fixed maturity plans (FMPs) or security products.

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Top 10 Debt Mutual Funds

Fund NameCategoryRisk1Y ReturnsRatingFund Size(in Cr)
Axis Banking & PSU Debt FundDebtModerately Low6.9%5star14,469
Kotak Low Duration FundDebtModerate8.6%5star7,265
Kotak Corporate Bond FundDebtModerately Low9.3%5star4,840
Kotak Dynamic Bond FundDebtModerately Low11.5%5star1,205
IDFC Bond Fund - Medium Term FundDebtModerate10.4%5star3,066
Axis Treasury Advantage FundDebtModerately Low6.9%5star5,894
L&T Money Market FundDebtModerately Low7.1%5star900
ICICI Prudential Credit Risk FundDebtModerate8.2%5star12,872
ICICI Prudential Ultra Short Term FundDebtModerate7.5%5star8,612
SBI Magnum Medium Duration FundDebtModerate11.8%5star3,100
Kotak Bond Short Term PlanDebtModerately Low10.0%5star11,560
Kotak Credit Risk FundDebtModerately Low8.9%5star5,280
IDFC Government Securities Fund Investment PlanDebtModerate15.6%5star480
Nippon India Gilt Securities FundDebtModerate15.2%5star1,135
LIC MF Banking & PSU Debt FundDebtModerate9.8%5star1,576
View All Top 10 Debt Mutual Funds

Features of Debt Mutual Fund

The primary objective of these funds is to accumulate wealth through capital appreciation and interest income. As these are fixed income instruments, the fund issuer pre-determines the rate of interest as well as the maturity period for these investment schemes.

The capital is invested in various securities, primarily based on their credit rating. The best performing debt mutual funds have a high credit rating, thereby ensuring a steady interest rate pay-out.

By Investing in best debt mutual funds, you can expect optimal returns as the investment is in a diversified portfolio of securities. The returns are somewhat predictable, and although relatively lower than equity funds, they are much safer and hence, preferred by conservative investors.

However, the rate of returns and inherent risks of debt funds are both dependant on the type of funds. Government securities are considered the safest options. The risk associated with corporate bonds depends on that company’s credit rating.

Taxability

For taxation purposes, all mutual funds with investments lower than 65% in equity instruments are considered debt funds. Short-term capital gains of less than 36 months are taxed corresponding to the investor’s income tax slab.

A tax rate of 20% is levied on long-term capital gains above 36 months after indexation. Indexation refers to the adjustment of the price of debt funds after factoring in the inflation between the years when that fund was purchased and the year when you sell them. This adjustment allows for the inflation of purchase price, thereby bringing down the overall quantum of capital gains. Subsequently, your taxable income reduces proportionately.

Who Are These Funds Suited For?

Debt funds are tailor-made for investors whose risk appetite is low. If you invest in the best performing debt funds of 2019, you can expect steady wealth creation, albeit at a slower pace. The slow pace is well-compensated by the lack of any risk whatsoever. It’s akin to a fixed deposit, with slightly higher returns on a smaller timeframe.

Short-term investors should look to put their money in liquid funds. These funds ensure a 7-9% return and can be withdrawn at any time, much like a bank savings account. For long-term investors, dynamic bond funds are considered the best debt funds to invest in via SIP mode.

Major Advantages

Risk-averse investors find these mutual funds as the best investment instruments because of the plethora of benefits they entail. Some of them are mentioned below.

  • These funds are generally extremely liquid. An investor can withdraw the sum any time they wish. Unlike fixed deposits, there are no penalties associated with the premature withdrawal of capital.
  • You can also make partial withdrawals without entirely breaking your fund.
  • They are also more tax-efficient than similar investment instruments. The secret is to hold the investment for as long as you can. The longer the term of investment, the more tax benefits you will enjoy.
  • TDS is also not applicable to debt funds.
  • These funds are incredibly flexible. You may invest as and when you want either through a SIP or if you come across surplus funds. You can even shift your investment seamlessly to a different equity fund from the same fund house. Most astute investors first invest their lump sum amount in a debt fund before starting a systematic transfer plan to equity funds of their choice.
  • In case the interest rate drops, you can expect a much higher return on your long-term debt funds. In the previous year, the average return for short term debt funds was 9.5%. The corresponding rate for long term investment is 12%.

Let's have a closer look

Now let us jump and check about these top 10 mutual fund schemes.

Axis Banking & PSU Debt Direct Plan Growth

Fund Performance: This fund has given 7.79% annualized returns in the last three years. In the last year, its returns were 6.93%. It has continually hit its benchmark in the Debt segment.

Why to invest: It is one of the most remarkable Debt mutual funds in India. This fund has constantly outperformed other similar funds, providing 6.93% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹5,000. Minimum SIP investment amount required for this scheme is ₹1,000.

Min Investment Amt₹5,000
AUM14,469Cr
1Y Returns6.9%

Kotak Low Duration Fund Direct Growth

Fund Performance: This fund has given 8.3% annualized returns in the last three years. In the last year, its returns were 8.57%. It has continually hit its benchmark in the Debt segment.

Why to invest: It is one of the most remarkable Debt mutual funds in India. This fund has constantly outperformed other similar funds, providing 8.57% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹5,000. Minimum SIP investment amount required for this scheme is ₹1,000.

Min Investment Amt₹5,000
AUM7,265Cr
1Y Returns8.6%

Kotak Corporate Bond Fund Direct Growth

Fund Performance: This fund has given 8.28% annualized returns in the last three years. In the last year, its returns were 9.32%. It has continually hit its benchmark in the Debt segment.

Why to invest: It is one of the most remarkable Debt mutual funds in India. This fund has constantly outperformed other similar funds, providing 9.32% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹5,000. Minimum SIP investment amount required for this scheme is ₹1,000.

Min Investment Amt₹5,000
AUM4,840Cr
1Y Returns9.3%

Kotak Dynamic Bond Fund Direct Growth

Fund Performance: This fund has given 9.16% annualized returns in the last three years. In the last year, its returns were 11.47%. It has continually hit its benchmark in the Debt segment.

Why to invest: It is one of the most remarkable Debt mutual funds in India. This fund has constantly outperformed other similar funds, providing 11.47% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹5,000. Minimum SIP investment amount required for this scheme is ₹1,000.

Min Investment Amt₹5,000
AUM1,205Cr
1Y Returns11.5%

IDFC Bond Fund Medium Term Plan Direct Growth

Fund Performance: This fund has given 7.94% annualized returns in the last three years. In the last year, its returns were 10.36%. It has continually hit its benchmark in the Debt segment.

Why to invest: It is one of the most remarkable Debt mutual funds in India. This fund has constantly outperformed other similar funds, providing 10.36% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹5,000. Minimum SIP investment amount required for this scheme is ₹1,000.

Min Investment Amt₹5,000
AUM3,066Cr
1Y Returns10.4%

Axis Treasury Advantage Direct Fund Growth

Fund Performance: This fund has given 7.45% annualized returns in the last three years. In the last year, its returns were 6.86%. It has continually hit its benchmark in the Debt segment.

Why to invest: It is one of the most remarkable Debt mutual funds in India. This fund has constantly outperformed other similar funds, providing 6.86% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹5,000. Minimum SIP investment amount required for this scheme is ₹1,000.

Min Investment Amt₹5,000
AUM5,894Cr
1Y Returns6.9%

L&T Money Market Fund Direct Growth

Fund Performance: This fund has given 7.65% annualized returns in the last three years. In the last year, its returns were 7.06%. It has continually hit its benchmark in the Debt segment.

Why to invest: It is one of the most remarkable Debt mutual funds in India. This fund has constantly outperformed other similar funds, providing 7.06% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹10,000. Minimum SIP investment amount required for this scheme is ₹1,000.

Min Investment Amt₹10,000
AUM900Cr
1Y Returns7.1%

ICICI Prudential Credit Risk Fund Direct Plan Growth

Fund Performance: This fund has given 7.99% annualized returns in the last three years. In the last year, its returns were 8.2%. It has continually hit its benchmark in the Debt segment.

Why to invest: It is one of the most remarkable Debt mutual funds in India. This fund has constantly outperformed other similar funds, providing 8.2% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹100. Minimum SIP investment amount required for this scheme is ₹100.

Min Investment Amt₹100
AUM12,872Cr
1Y Returns8.2%

ICICI Prudential Ultra Short Term Fund Direct Growth

Fund Performance: This fund has given 7.77% annualized returns in the last three years. In the last year, its returns were 7.45%. It has continually hit its benchmark in the Debt segment.

Why to invest: It is one of the most remarkable Debt mutual funds in India. This fund has constantly outperformed other similar funds, providing 7.45% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹5,000. Minimum SIP investment amount required for this scheme is ₹1,000.

Min Investment Amt₹5,000
AUM8,612Cr
1Y Returns7.5%

SBI Magnum Medium Duration Fund Direct Growth

Fund Performance: This fund has given 9.14% annualized returns in the last three years. In the last year, its returns were 11.76%. It has continually hit its benchmark in the Debt segment.

Why to invest: It is one of the most remarkable Debt mutual funds in India. This fund has constantly outperformed other similar funds, providing 11.76% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹5,000. Minimum SIP investment amount required for this scheme is ₹500.

Min Investment Amt₹5,000
AUM3,100Cr
1Y Returns11.8%

Kotak Bond Short Term Fund Direct Growth

Fund Performance: This fund has given 8.19% annualized returns in the last three years. In the last year, its returns were 10.02%. It has continually hit its benchmark in the Debt segment.

Why to invest: It is one of the most remarkable Debt mutual funds in India. This fund has constantly outperformed other similar funds, providing 10.02% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹5,000. Minimum SIP investment amount required for this scheme is ₹1,000.

Min Investment Amt₹5,000
AUM11,560Cr
1Y Returns10.0%

Kotak Credit Risk Fund Direct Growth

Fund Performance: This fund has given 7.9% annualized returns in the last three years. In the last year, its returns were 8.9%. It has continually hit its benchmark in the Debt segment.

Why to invest: It is one of the most remarkable Debt mutual funds in India. This fund has constantly outperformed other similar funds, providing 8.9% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹5,000. Minimum SIP investment amount required for this scheme is ₹1,000.

Min Investment Amt₹5,000
AUM5,280Cr
1Y Returns8.9%

IDFC Government Securities Investment Plan Direct Growth

Fund Performance: This fund has given 9.27% annualized returns in the last three years. In the last year, its returns were 15.61%. It has continually hit its benchmark in the Debt segment.

Why to invest: It is one of the most remarkable Debt mutual funds in India. This fund has constantly outperformed other similar funds, providing 15.61% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹5,000. Minimum SIP investment amount required for this scheme is ₹1,000.

Min Investment Amt₹5,000
AUM480Cr
1Y Returns15.6%

Nippon India Gilt Securities Fund Direct Growth

Fund Performance: This fund has given 10.04% annualized returns in the last three years. In the last year, its returns were 15.18%. It has continually hit its benchmark in the Debt segment.

Why to invest: It is one of the most remarkable Debt mutual funds in India. This fund has constantly outperformed other similar funds, providing 15.18% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹5,000. Minimum SIP investment amount required for this scheme is ₹100.

Min Investment Amt₹5,000
AUM1,135Cr
1Y Returns15.2%

LIC MF Banking & PSU Debt Fund Direct Growth

Fund Performance: This fund has given 8.41% annualized returns in the last three years. In the last year, its returns were 9.76%. It has continually hit its benchmark in the Debt segment.

Why to invest: It is one of the most remarkable Debt mutual funds in India. This fund has constantly outperformed other similar funds, providing 9.76% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹5,000. Minimum SIP investment amount required for this scheme is ₹1,000.

Min Investment Amt₹5,000
AUM1,576Cr
1Y Returns9.8%

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