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Best Debt Mutual Funds

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 2024.

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List of Debt Mutual Funds in India

Fund NameCategoryRisk1Y ReturnsRatingFund Size(in Cr)
Aditya Birla Sun Life Medium Term Plan Fund
DebtModerately High8.2%5₹1,888
Aditya Birla Sun Life Medium Term Fund
DebtModerately High7.3%5₹1,891
Baroda BNP Paribas Credit Risk Fund
DebtModerately High8.5%5₹164
UTI Medium to Long Duration Fund
DebtModerate7.9%5₹303
Nippon India Strategic Debt Fund
DebtModerately High8.4%5₹119
Sundaram Low Duration Fund
DebtLow to Moderate7.4%5₹398
Sundaram Short Duration Fund
DebtModerate7.8%5₹198
UTI Short Duration Fund
DebtModerate8.2%5₹2,378
Nippon India Ultra Short Duration Fund
DebtModerate7.7%5₹5,319
UTI Low Duration Fund
DebtLow to Moderate7.4%5₹3,147
Aditya Birla Sun Life Dynamic Bond Retail Fund
DebtModerate8.5%5₹1,709
ICICI Prudential All Seasons Bond Fund
DebtModerate8.7%5₹11,698
ICICI Prudential Gilt Fund
DebtLow to Moderate9.3%5₹4,616
SBI Magnum Gilt Fund
DebtModerate9.7%5₹7,820
Nippon India Corporate Bond Fund
DebtModerate8.1%5₹2,647
View All

Who Should Invest in Debt Mutual Funds?

The individuals who can find debt funds the most suitable are:

  1. 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. 

  1. 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. 

  1. 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. 

  1. 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-

  1. 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. 
  2. 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 2024, ensure to check the risks mentioned below-

  1. 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. 
  2. 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.
  1. 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.

Aditya Birla Sun Life Medium Term Plan Direct Growth

Fund Performance: The Aditya Birla Sun Life Medium Term Plan Fund has given 13.32% annualized returns in the past three years and 9.43% in the last 5 years. The Aditya Birla Sun Life Medium Term Plan Fund comes under the Debt category of Aditya Birla Sun Life Mutual Funds.

Minimum Investment Amount: The minimum amount required to invest in Aditya Birla Sun Life Medium Term Plan Fund via lump sum is ₹1,000 and via SIP is ₹1,000.

Min Investment Amt₹1,000
AUM₹1,888Cr
1Y Returns8.2%

Aditya Birla Sun Life Medium Term Direct Plan Growth

Fund Performance: The Aditya Birla Sun Life Medium Term Fund has given 13.26% annualized returns in the past three years and 8.91% in the last 5 years. The Aditya Birla Sun Life Medium Term Fund comes under the Debt category of Aditya Birla Sun Life Mutual Funds.

Minimum Investment Amount: The minimum amount required to invest in Aditya Birla Sun Life Medium Term Fund via lump sum is ₹1,000 and via SIP is ₹1,000.

Min Investment Amt₹1,000
AUM₹1,891Cr
1Y Returns7.3%

Baroda BNP Paribas Credit Risk Fund Direct Growth

Fund Performance: The Baroda BNP Paribas Credit Risk Fund has given 11.02% annualized returns in the past three years and 7.93% in the last 5 years. The Baroda BNP Paribas Credit Risk Fund comes under the Debt category of Baroda Mutual Funds.

Minimum Investment Amount: The minimum amount required to invest in Baroda BNP Paribas Credit Risk Fund via lump sum is ₹5,000 and via SIP is ₹500.

Min Investment Amt₹5,000
AUM₹164Cr
1Y Returns8.5%

UTI Medium to Long Duration Fund Direct Growth

Fund Performance: The UTI Medium to Long Duration Fund has given 9.81% annualized returns in the past three years and 5.35% in the last 5 years. The UTI Medium to Long Duration Fund comes under the Debt category of UTI Mutual Funds.

Minimum Investment Amount: The minimum amount required to invest in UTI Medium to Long Duration Fund via lump sum is ₹500 and via SIP is ₹500.

Min Investment Amt₹500
AUM₹303Cr
1Y Returns7.9%

Nippon India Strategic Debt Fund Direct Growth

Fund Performance: The Nippon India Strategic Debt Fund has given 9.77% annualized returns in the past three years and -0.38% in the last 5 years. The Nippon India Strategic Debt Fund comes under the Debt category of Nippon India Mutual Funds.

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

Min Investment Amt₹5,000
AUM₹119Cr
1Y Returns8.4%

Sundaram Low Duration Fund Direct Growth

Fund Performance: The Sundaram Low Duration Fund has given 8.15% annualized returns in the past three years and 5.27% 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₹398Cr
1Y Returns7.4%

Sundaram Short Duration Fund Direct Growth

Fund Performance: The Sundaram Short Duration Fund has given 7.94% annualized returns in the past three years and 5.86% in the last 5 years. The Sundaram Short Duration Fund comes under the Debt category of Sundaram Mutual Funds.

Minimum Investment Amount: The minimum amount required to invest in Sundaram Short Duration Fund via lump sum is ₹5,000 and via SIP is ₹250.

Min Investment Amt₹5,000
AUM₹198Cr
1Y Returns7.8%

UTI Short Duration Direct Growth

Fund Performance: The UTI Short Duration Fund has given 7.57% annualized returns in the past three years and 5.72% in the last 5 years. The UTI Short Duration Fund comes under the Debt category of UTI Mutual Funds.

Minimum Investment Amount: The minimum amount required to invest in UTI Short Duration Fund via lump sum is ₹500 and via SIP is ₹500.

Min Investment Amt₹500
AUM₹2,378Cr
1Y Returns8.2%

Nippon India Ultra Short Duration Fund Direct Growth

Fund Performance: The Nippon India Ultra Short Duration Fund has given 7.37% annualized returns in the past three years and 5.72% in the last 5 years. The Nippon India Ultra Short Duration Fund comes under the Debt category of Nippon India Mutual Funds.

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

Min Investment Amt₹100
AUM₹5,319Cr
1Y Returns7.7%

UTI Low Duration Fund Direct Growth

Fund Performance: The UTI Low Duration Fund has given 7.22% annualized returns in the past three years and 4.74% in the last 5 years. The UTI Low Duration Fund comes under the Debt category of UTI Mutual Funds.

Minimum Investment Amount: The minimum amount required to invest in UTI Low Duration Fund via lump sum is ₹500 and via SIP is ₹500.

Min Investment Amt₹500
AUM₹3,147Cr
1Y Returns7.4%

Aditya Birla Sun Life Dynamic Bond Retail Fund Direct Growth

Fund Performance: The Aditya Birla Sun Life Dynamic Bond Retail Fund has given 7.19% annualized returns in the past three years and 6.46% in the last 5 years. The Aditya Birla Sun Life Dynamic Bond Retail Fund comes under the Debt category of Aditya Birla Sun Life Mutual Funds.

Minimum Investment Amount: The minimum amount required to invest in Aditya Birla Sun Life Dynamic Bond Retail Fund via lump sum is ₹1,000 and via SIP is ₹1,000.

Min Investment Amt₹1,000
AUM₹1,709Cr
1Y Returns8.5%

ICICI Prudential All Seasons Bond Fund Direct Plan Growth

Fund Performance: The ICICI Prudential All Seasons Bond Fund has given 6.71% annualized returns in the past three years and 8.55% in the last 5 years. The ICICI Prudential All Seasons Bond Fund comes under the Debt category of ICICI Prudential Mutual Funds.

Minimum Investment Amount: The minimum amount required to invest in ICICI Prudential All Seasons Bond Fund via lump sum is ₹5,000 and via SIP is ₹100.

Min Investment Amt₹5,000
AUM₹11,698Cr
1Y Returns8.7%

ICICI Prudential Gilt Fund Direct Plan Growth

Fund Performance: The ICICI Prudential Gilt Fund has given 6.52% annualized returns in the past three years and 8.52% 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₹4,616Cr
1Y Returns9.3%

SBI Magnum Gilt Fund Direct Growth

Fund Performance: The SBI Magnum Gilt Fund has given 6.44% annualized returns in the past three years and 8.75% in the last 5 years. The SBI Magnum Gilt Fund comes under the Debt category of SBI Mutual Funds.

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

Min Investment Amt₹5,000
AUM₹7,820Cr
1Y Returns9.7%

Nippon India Corporate Bond Fund Direct Growth

Fund Performance: The Nippon India Corporate Bond Fund has given 6.24% annualized returns in the past three years and 7.08% in the last 5 years. The Nippon India Corporate Bond Fund comes under the Debt category of Nippon India Mutual Funds.

Minimum Investment Amount: The minimum amount required to invest in Nippon India Corporate Bond Fund via lump sum is ₹1,000 and via SIP is ₹100.

Min Investment Amt₹1,000
AUM₹2,647Cr
1Y Returns8.1%

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