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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)
DSP Government Securities FundDebtModerate6.2%5star432
SBI Magnum Constant Maturity FundDebtModerate5.4%5star801
Axis Gilt FundDebtModerate6.2%5star147
SBI Magnum Income FundDebtModerately High6.9%5star1,700
Kotak Dynamic Bond FundDebtModerate6.7%5star2,984
SBI Magnum Medium Duration FundDebtModerately High7.2%5star9,555
ICICI Prudential All Seasons Bond FundDebtModerately High7.5%5star6,036
IDFC Banking & PSU FundDebtLow to Moderate5.4%5star19,284
HDFC Credit Risk Debt Fund DebtHigh10.7%5star8,311
Nippon India Banking & PSU Debt FundDebtModerate6.2%5star6,785
ICICI Prudential Credit Risk FundDebtHigh8.6%5star7,926
ICICI Prudential Short Term FundDebtModerate6.7%5star20,850
Aditya Birla Sun Life Corporate Bond FundDebtLow to Moderate6.4%5star24,413
Aditya Birla Sun Life Short Term FundDebtModerate6.5%5star8,514
Edelweiss Dynamic Bond FundDebtLow to Moderate3.8%5star388
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.

DSP Government Securities Direct Plan Growth

Fund Performance: This fund has given 11.82% annualized returns in the last three years. In the last year, its returns were 6.2%. 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 6.2% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹500. Minimum SIP investment amount required for this scheme is ₹500.

Min Investment Amt₹500
AUM432Cr
1Y Returns6.2%

SBI Magnum Constant Maturity Fund Direct Growth

Fund Performance: This fund has given 11.3% annualized returns in the last three years. In the last year, its returns were 5.41%. 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 5.41% 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
AUM801Cr
1Y Returns5.4%

Axis Gilt Fund Direct Plan Growth

Fund Performance: This fund has given 11.14% annualized returns in the last three years. In the last year, its returns were 6.16%. 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 6.16% 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
AUM147Cr
1Y Returns6.2%

SBI Magnum Income Direct Plan Growth

Fund Performance: This fund has given 10.74% annualized returns in the last three years. In the last year, its returns were 6.92%. 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 6.92% 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
AUM1,700Cr
1Y Returns6.9%

Kotak Dynamic Bond Fund Direct Growth

Fund Performance: This fund has given 10.57% annualized returns in the last three years. In the last year, its returns were 6.7%. 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 6.7% 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
AUM2,984Cr
1Y Returns6.7%

SBI Magnum Medium Duration Fund Direct Growth

Fund Performance: This fund has given 10.38% annualized returns in the last three years. In the last year, its returns were 7.17%. 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 7.17% 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
AUM9,555Cr
1Y Returns7.2%

ICICI Prudential All Seasons Bond Fund Direct Plan Growth

Fund Performance: This fund has given 10.34% annualized returns in the last three years. In the last year, its returns were 7.5%. 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 7.5% 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
AUM6,036Cr
1Y Returns7.5%

IDFC Banking & PSU Debt Fund Direct Growth

Fund Performance: This fund has given 10.13% annualized returns in the last three years. In the last year, its returns were 5.44%. 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 5.44% 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
AUM19,284Cr
1Y Returns5.4%

HDFC Credit Risk Debt Fund Direct Growth

Fund Performance: This fund has given 10% annualized returns in the last three years. In the last year, its returns were 10.69%. 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 10.69% 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
AUM8,311Cr
1Y Returns10.7%

Nippon India Banking & PSU Debt Fund Direct Growth

Fund Performance: This fund has given 9.8% annualized returns in the last three years. In the last year, its returns were 6.16%. 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 6.16% 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
AUM6,785Cr
1Y Returns6.2%

ICICI Prudential Credit Risk Fund Direct Plan Growth

Fund Performance: This fund has given 9.62% annualized returns in the last three years. In the last year, its returns were 8.55%. 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 8.55% 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
AUM7,926Cr
1Y Returns8.6%

ICICI Prudential Short Term Fund Direct Plan Growth

Fund Performance: This fund has given 9.53% annualized returns in the last three years. In the last year, its returns were 6.69%. 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 6.69% 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
AUM20,850Cr
1Y Returns6.7%

Aditya Birla Sun Life Corporate Bond Fund Direct Growth

Fund Performance: This fund has given 9.52% annualized returns in the last three years. In the last year, its returns were 6.42%. 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 6.42% 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
AUM24,413Cr
1Y Returns6.4%

Aditya Birla Sun Life Short Term Direct Fund Growth

Fund Performance: This fund has given 9.46% annualized returns in the last three years. In the last year, its returns were 6.53%. 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 6.53% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹1,000. Minimum SIP investment amount required for this scheme is ₹1,000.

Min Investment Amt₹1,000
AUM8,514Cr
1Y Returns6.5%

Edelweiss Money Market Fund Direct Growth

Fund Performance: This fund has given 9.45% annualized returns in the last three years. In the last year, its returns were 3.78%. 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 3.78% 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
AUM388Cr
1Y Returns3.8%

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