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	Rating	Fund Size (in Cr)	Exit Load
HDFC Income Plus Arbitrage Active FoF Direct-Growth	Debt	Moderate	44.09	0.07	4.0%	12.6%	13.3%	5	₹2,461	-
Invesco India Credit Risk Fund	Debt	Moderate	2,225.78	0.28	10.2%	10.5%	7.9%	5	₹155	Exit load of 1%, if redeemed within 1 year.
ICICI Prudential Short Term Fund	Debt	Moderate	67.99	0.45	8.2%	8.2%	7.0%	5	₹20,935	-
ICICI Prudential Gilt Fund	Debt	Moderate	113.23	0.57	6.8%	8.2%	6.7%	5	₹9,181	-
Franklin India Corporate Debt Fund	Debt	Moderate	111.63	0.25	9.2%	8.2%	6.6%	5	₹1,338	-
Axis Corporate Bond Fund	Debt	Moderate	18.64	0.36	7.9%	8.0%	6.7%	5	₹9,435	-
Axis Short Duration Fund	Debt	Moderate	34.86	0.38	8.0%	8.0%	6.6%	5	₹12,707	-
ICICI Prudential Debt Management Fund	Debt	Moderately High	47.89	0.41	8.1%	8.0%	6.6%	5	₹110	Exit load of 0.25% if redeemed within 15 days.
ICICI Prudential Corporate Bond Fund	Debt	Moderate	32.29	0.35	7.7%	7.9%	6.7%	5	₹33,871	-
Nippon India Dynamic Bond Fund	Debt	Moderate	40.93	0.35	6.9%	7.8%	6.0%	5	₹4,387	-
ICICI Prudential Banking & PSU Debt Direct-Growth	Debt	Moderate	35.20	0.39	7.5%	7.8%	6.6%	5	₹9,727	-
Tata Money Market Fund	Debt	Moderate	4,983.85	0.16	7.4%	7.7%	6.5%	5	₹35,599	-
Sundaram Low Duration Fund	Debt	Low to Moderate	3,835.58	0.4	7.3%	7.5%	7.9%	5	₹472	-
ITI Banking and PSU Debt Fund	Debt	Moderate	13.74	0.15	7.5%	7.5%	6.3%	5	₹37	-
Tata Ultra Short Term Fund	Debt	Moderate	15.42	0.29	7.3%	7.5%	6.3%	5	₹4,560	-
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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.

HDFC Income Plus Arbitrage Active FoF Direct Growth

Fund Performance: The HDFC Income Plus Arbitrage Active FoF Direct-Growth has given 12.62% annualized returns in the past three years and 13.33% in the last 5 years. The HDFC Income Plus Arbitrage Active FoF Direct-Growth comes under the Debt category of HDFC Mutual Funds.

Minimum Investment Amount: The minimum amount required to invest in HDFC Income Plus Arbitrage Active FoF Direct-Growth via lump sum is ₹100 and via SIP is ₹100.

Min Investment Amt	₹100
AUM	₹2,461Cr
1Y Returns	4.0%

Invesco India Credit Risk Fund Direct Growth

Fund Performance: The Invesco India Credit Risk Fund has given 10.53% annualized returns in the past three years and 7.92% in the last 5 years. The Invesco India Credit Risk Fund comes under the Debt category of Invesco Mutual Funds.

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

Min Investment Amt	₹1,000
AUM	₹155Cr
1Y Returns	10.2%

ICICI Prudential Short Term Fund Direct Plan Growth

Fund Performance: The ICICI Prudential Short Term Fund has given 8.24% annualized returns in the past three years and 7.03% 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	₹20,935Cr
1Y Returns	8.2%

ICICI Prudential Gilt Fund Direct Plan Growth

Fund Performance: The ICICI Prudential Gilt Fund has given 8.17% annualized returns in the past three years and 6.69% in the last 5 years. The ICICI Prudential Gilt Fund comes under the Debt category of ICICI Prudential Mutual Funds.

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

Min Investment Amt	₹5,000
AUM	₹9,181Cr
1Y Returns	6.8%

Franklin India Corporate Debt Fund Direct Growth

Fund Performance: The Franklin India Corporate Debt Fund has given 8.16% annualized returns in the past three years and 6.6% in the last 5 years. The Franklin India Corporate Debt Fund comes under the Debt category of Franklin Templeton Mutual Funds.

Minimum Investment Amount: The minimum amount required to invest in Franklin India Corporate Debt Fund via lump sum is ₹10,000 and via SIP is ₹500.

Min Investment Amt	₹10,000
AUM	₹1,338Cr
1Y Returns	9.2%

Axis Corporate Bond Fund Direct Growth

Fund Performance: The Axis Corporate Bond Fund has given 8.02% annualized returns in the past three years and 6.69% in the last 5 years. The Axis Corporate Bond Fund comes under the Debt category of Axis Mutual Funds.

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

Min Investment Amt	₹100
AUM	₹9,435Cr
1Y Returns	7.9%

Axis Short Duration Fund Direct Growth

Fund Performance: The Axis Short Duration Fund has given 8% annualized returns in the past three years and 6.63% in the last 5 years. The Axis Short Duration Fund comes under the Debt category of Axis Mutual Funds.

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

Min Investment Amt	₹100
AUM	₹12,707Cr
1Y Returns	8.0%

ICICI Prudential Debt Management Fund (FOF) Direct Plan Growth

Fund Performance: The ICICI Prudential Debt Management Fund has given 7.95% annualized returns in the past three years and 6.6% in the last 5 years. The ICICI Prudential Debt Management Fund comes under the Debt category of ICICI Prudential Mutual Funds.

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

Min Investment Amt	₹100
AUM	₹110Cr
1Y Returns	8.1%

ICICI Prudential Corporate Bond Fund Direct Plan Growth

Fund Performance: The ICICI Prudential Corporate Bond Fund has given 7.93% 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	₹33,871Cr
1Y Returns	7.7%

Nippon India Dynamic Bond Fund Direct Growth

Fund Performance: The Nippon India Dynamic Bond Fund has given 7.84% annualized returns in the past three years and 5.98% in the last 5 years. The Nippon India Dynamic Bond Fund comes under the Debt category of Nippon India Mutual Funds.

Minimum Investment Amount: The minimum amount required to invest in Nippon India Dynamic Bond Fund via lump sum is ₹5,000 and via SIP is ₹100.

Min Investment Amt	₹5,000
AUM	₹4,387Cr
1Y Returns	6.9%

ICICI Prudential Banking & PSU Debt Direct Growth

Fund Performance: The ICICI Prudential Banking & PSU Debt Direct-Growth has given 7.8% annualized returns in the past three years and 6.62% in the last 5 years. The ICICI Prudential Banking & PSU Debt Direct-Growth comes under the Debt category of ICICI Prudential Mutual Funds.

Minimum Investment Amount: The minimum amount required to invest in ICICI Prudential Banking & PSU Debt Direct-Growth via lump sum is ₹500 and via SIP is ₹100.

Min Investment Amt	₹500
AUM	₹9,727Cr
1Y Returns	7.5%

Tata Money Market Fund Direct Growth

Fund Performance: The Tata Money Market Fund has given 7.69% annualized returns in the past three years and 6.49% in the last 5 years. The Tata Money Market Fund comes under the Debt category of Tata Mutual Funds.

Minimum Investment Amount: The minimum amount required to invest in Tata Money Market Fund via lump sum is ₹5,000 and via SIP is ₹500.

Min Investment Amt	₹5,000
AUM	₹35,599Cr
1Y Returns	7.4%

Sundaram Low Duration Fund Direct Growth

Fund Performance: The Sundaram Low Duration Fund has given 7.53% annualized returns in the past three years and 7.87% in the last 5 years. The Sundaram Low Duration Fund comes under the Debt category of Sundaram Mutual Funds.

Minimum Investment Amount: The minimum amount required to invest in Sundaram Low Duration Fund via lump sum is ₹1,000 and via SIP is ₹1,000.

Min Investment Amt	₹1,000
AUM	₹472Cr
1Y Returns	7.3%

ITI Banking and PSU Debt Fund Direct Growth

Fund Performance: The ITI Banking and PSU Debt Fund has given 7.52% annualized returns in the past three years and 6.32% in the last 5 years. The ITI Banking and PSU Debt Fund comes under the Debt category of ITI Mutual Funds.

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

Min Investment Amt	₹5,000
AUM	₹37Cr
1Y Returns	7.5%

Tata Ultra Short Term Fund Direct Growth

Fund Performance: The Tata Ultra Short Term Fund has given 7.52% annualized returns in the past three years and 6.32% in the last 5 years. The Tata Ultra Short Term Fund comes under the Debt category of Tata Mutual Funds.

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