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Best Debt Mutual Funds

Debt funds in India principally invest in fixed-income securities. It includes corporate bonds, treasury bills, debentures, and commercial paper, among others.

Since the best debt mutual funds primarily deal with debt instruments that earn a fixed interest, they carry lower risks than equity funds. Before investing in schemes under this category, it’s imperative for individuals to be aware of their characteristics.

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List of Debt Mutual Funds in India

Fund NameCategoryRisk1Y ReturnsRatingFund Size(in Cr)
Edelweiss Government Securities FundDebtLow to Moderate4.8%5₹118
Axis Gilt FundDebtModerate2.8%5₹147
SBI Magnum Medium Duration FundDebtModerately High4.5%5₹10,974
HDFC Credit Risk Debt FundDebtModerately High7.3%5₹8,979
ICICI Prudential All Seasons Bond FundDebtModerately High4.6%5₹6,654
Kotak Dynamic Bond FundDebtModerate3.6%5₹3,134
ICICI Prudential Credit Risk FundDebtHigh7.0%5₹8,416
Nippon India Banking & PSU Debt FundDebtModerate4.6%5₹6,156
ICICI Prudential Short Term FundDebtModerate4.5%5₹22,059
Aditya Birla Sun Life Short Term Direct FundDebtModerate4.8%5₹9,449
Aditya Birla Sun Life Corporate Bond FundDebtModerate4.5%5₹19,392
Nippon India Short Term FundDebtModerate5.6%5₹9,692
ICICI Prudential Corporate Bond FundDebtModerate4.2%5₹19,104
IIFL Dynamic Bond FundDebtModerate6.3%5₹722
Aditya Birla Sun Life Low Duration FundDebtLow to Moderate4.7%5₹15,125
View All

Features of Debt Mutual Funds

The following are the characteristics of best debt mutual funds 2021

Types of debt funds: Debt funds are of 16 types, broadly classified into two categories – security-based and duration-based. Schemes like money market fund, gilt fund, dynamic bond fund, banking and PSU fund fall under the former category. Ultra-short-term funds, long-term funds, medium-duration funds, and overnight fund are examples of the latter type. 

Asset allocation: Fixed-income funds invest a significant portion of the corpus in debt and money market instruments. 

Risk-return ratio: The best debt mutual fund offers stable and moderate returns against negligible market risks. However, fixed-income funds involve credit risk and inflation risk.

Taxability

Short-term capital gains tax: In case debt fund units are sold before 3 years from the date of purchase, proceeds are taxed as per the investors’ slab rate. Thus, it will be 31.20% (30% + 4% cess) for investors in the highest tax bracket.  

Long-term capital gains tax: If units of a debt fund are redeemed after 3 years, 20% tax will be applicable on the gains along with indexation benefits. This benefit applies to each year an individual remains invested in a debt MF. 

TDS: Not applicable.

Who Are These Funds Suited For?

The best debt mutual funds are immune to stock market volatility and provide higher capital appreciation compared to bank fixed deposits. Debt MFs may be suitable for those looking to capitalise on these elements for diversifying their portfolio.

To decide whether to invest in fixed income funds, investors can take into consideration certain factors, like investment goal, investment horizon, and risk tolerance.

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.

Let's have a closer look

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

Edelweiss Government Securities Fund Direct Growth

Fund Performance: The Edelweiss Government Securities Fund has given 9.96% annualized returns in the past three years and 8.11% in the last 5 years. The Edelweiss Government Securities Fund belongs to the Debt category of Edelweiss Mutual Funds.

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

Min Investment Amt₹5,000
AUM₹118Cr
1Y Returns4.8%

Axis Gilt Fund Direct Plan Growth

Fund Performance: The Axis Gilt Fund has given 9.54% annualized returns in the past three years and 6.95% in the last 5 years. The Axis Gilt Fund belongs to the Debt category of Axis Mutual Funds.

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

Min Investment Amt₹5,000
AUM₹147Cr
1Y Returns2.8%

SBI Magnum Medium Duration Fund Direct Growth

Fund Performance: The SBI Magnum Medium Duration Fund has given 9.35% annualized returns in the past three years and 8.57% in the last 5 years. The SBI Magnum Medium Duration Fund belongs to the Debt category of SBI Mutual Funds.

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

Min Investment Amt₹5,000
AUM₹10,974Cr
1Y Returns4.5%

HDFC Credit Risk Debt Fund Direct Growth

Fund Performance: The HDFC Credit Risk Debt Fund has given 9.25% annualized returns in the past three years and 8.13% in the last 5 years. The HDFC Credit Risk Debt Fund belongs to the Debt category of HDFC Mutual Funds.

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

Min Investment Amt₹5,000
AUM₹8,979Cr
1Y Returns7.3%

ICICI Prudential All Seasons Bond Fund Direct Plan Growth

Fund Performance: The ICICI Prudential All Seasons Bond Fund has given 9.19% annualized returns in the past three years and 7.91% in the last 5 years. The ICICI Prudential All Seasons Bond Fund belongs to 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₹6,654Cr
1Y Returns4.6%

Kotak Dynamic Bond Fund Direct Growth

Fund Performance: The Kotak Dynamic Bond Fund has given 9.08% annualized returns in the past three years and 8.11% in the last 5 years. The Kotak Dynamic Bond Fund belongs to the Debt category of Kotak Mahindra Mutual Funds.

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

Min Investment Amt₹5,000
AUM₹3,134Cr
1Y Returns3.6%

ICICI Prudential Credit Risk Fund Direct Plan Growth

Fund Performance: The ICICI Prudential Credit Risk Fund has given 9.08% annualized returns in the past three years and 8.46% in the last 5 years. The ICICI Prudential Credit Risk Fund belongs to the Debt category of ICICI Prudential Mutual Funds.

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

Min Investment Amt₹100
AUM₹8,416Cr
1Y Returns7.0%

Nippon India Banking & PSU Debt Fund Direct Growth

Fund Performance: The Nippon India Banking & PSU Debt Fund has given 8.74% annualized returns in the past three years and 7.73% in the last 5 years. The Nippon India Banking & PSU Debt Fund belongs to the Debt category of Nippon India Mutual Funds.

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

Min Investment Amt₹5,000
AUM₹6,156Cr
1Y Returns4.6%

ICICI Prudential Short Term Fund Direct Plan Growth

Fund Performance: The ICICI Prudential Short Term Fund has given 8.57% annualized returns in the past three years and 7.8% in the last 5 years. The ICICI Prudential Short Term Fund belongs to 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₹22,059Cr
1Y Returns4.5%

Aditya Birla Sun Life Short Term Direct Fund Growth

Fund Performance: The Aditya Birla Sun Life Short Term Direct Fund has given 8.43% annualized returns in the past three years and 7.62% in the last 5 years. The Aditya Birla Sun Life Short Term Direct Fund belongs to the Debt category of Aditya Birla Sun Life Mutual Funds.

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

Min Investment Amt₹1,000
AUM₹9,449Cr
1Y Returns4.8%

Aditya Birla Sun Life Corporate Bond Fund Direct Growth

Fund Performance: The Aditya Birla Sun Life Corporate Bond Fund has given 8.41% annualized returns in the past three years and 7.74% in the last 5 years. The Aditya Birla Sun Life Corporate Bond Fund belongs to the Debt category of Aditya Birla Sun Life Mutual Funds.

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

Min Investment Amt₹100
AUM₹19,392Cr
1Y Returns4.5%

Nippon India Short Term Fund Direct Growth

Fund Performance: The Nippon India Short Term Fund has given 8.4% annualized returns in the past three years and 7.48% in the last 5 years. The Nippon India Short Term Fund belongs to the Debt category of Nippon India Mutual Funds.

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

Min Investment Amt₹100
AUM₹9,692Cr
1Y Returns5.6%

ICICI Prudential Corporate Bond Fund Direct Plan Growth

Fund Performance: The ICICI Prudential Corporate Bond Fund has given 8.13% annualized returns in the past three years and 7.49% in the last 5 years. The ICICI Prudential Corporate Bond Fund belongs to 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 ₹5,000 and via SIP is ₹1,000.

Min Investment Amt₹5,000
AUM₹19,104Cr
1Y Returns4.2%

IIFL Dynamic Bond Fund Direct Growth

Fund Performance: The IIFL Dynamic Bond Fund has given 7.54% annualized returns in the past three years and 7.27% in the last 5 years. The IIFL Dynamic Bond Fund belongs to the Debt category of IIFL Mutual Funds.

Minimum Investment Amount: The minimum amount required to invest in IIFL Dynamic Bond Fund via lump sum is ₹10,000 and via SIP is ₹1,000.

Min Investment Amt₹10,000
AUM₹722Cr
1Y Returns6.3%

Aditya Birla Sun Life Low Duration Fund Direct Growth

Fund Performance: The Aditya Birla Sun Life Low Duration Fund has given 7.2% annualized returns in the past three years and 7.38% in the last 5 years. The Aditya Birla Sun Life Low Duration Fund belongs to the Debt category of Aditya Birla Sun Life Mutual Funds.

Minimum Investment Amount: The minimum amount required to invest in Aditya Birla Sun Life Low Duration Fund via lump sum is ₹100 and via SIP is ₹100.

Min Investment Amt₹100
AUM₹15,125Cr
1Y Returns4.7%

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