SBI Mutual Fund started as a joint venture between Amundi, an Asset Management Company based in France, and the State Bank of India. Established in June 1987, SBI Mutual Fund was India’s first non-UTI MF company.

It is also the largest fund house in India in terms of asset size. As of 2nd April 2022, this fund house manages assets worth Rs.5.04 lakh crore, indicating a 35% growth in its average AUM in FY 2020-21.

This AMC offers approximately 60 schemes in various channels for prospective investors. These include equity schemes, hybrid schemes, solution-oriented schemes, and debt schemes, among others.

A debt fund is a type of mutual fund that invests predominantly in fixed-income securities. The best SBI debt mutual funds 2025 invest in debentures, commercial papers, treasury bills, corporate bonds, government securities, and other money-market instruments of this sort.

These instruments come with a pre-decided maturity date and rate of interest. Moreover, yields that MF investors receive is based on interest earned by them. As a result, debt mutual funds are also referred to as fixed-income funds.

Investing in SBI debt mutual funds has its own set of advantages and disadvantages, based on the kind of scheme. Upsides of the best SBI debt mutual funds are stable returns, more flexibility, and high liquidity. As debt funds invest their assets in various fixed-income instruments, they considerably lower the associated risk for investors.

However, these funds generally offer lower returns compared to more aggressive investment tools such as their equity counterparts.

SBI Mutual Fund offers 10+ schemes under the category of debt funds. These schemes comprise various short- and long-term options under their investment portfolio.

Taxability

Prior to investing in any of the top SBI debt mutual funds, it is also imperative to understand their taxability. Debt funds are liable to two types of taxation depending upon their holding period:

Short-term Capital Gains Tax: The tax on debt MF units held for less than 3 years is calculated based on an investor’s income tax bracket. If investors redeem the best SBI debt mutual funds before 3 years, such gains are added to their taxable income and taxed as per their income slab. For instance, an investor belonging to the 10% income slab is liable to pay 10% + 4% cess as short-term capital gain tax or STCGT.

Long-term Capital Gains Tax: Debt funds redeemed after a period of 3 years of investment are subject to long-term capital gains tax or LTCGT. As a result, a 20% tax is applicable on long-term returns. Moreover, these funds also receive indexation benefits, which remain applicable for each year of holding a debt MF unit.

TDS: Investors must also be aware that tax deducted at source is not applicable on debt MFs.

Factors to Consider Before Investing

Knowledge about taxation of the best SBI debt mutual funds is imperative for investors to make informed investment decisions. Furthermore, a comprehensive understanding of several parameters is also crucial in this regard.

Expense ratio: It is the sum of expenses incurred for managing a debt fund scheme. The daily NAV is adjusted for the expense ratio.

Duration: Debt funds are typically more sensitive to interest rate movements. In fact, prices of fixed-income securities are inversely related to interest rates. This price sensitivity of debt mutual funds is known as duration. The longer the duration, the more vulnerable an SBI debt fund is to interest rate fluctuations and vice versa.

Interest rate regime: Under a falling interest rate regime, previously issued bonds are valued higher compared to freshly issued bonds. Similarly, in the case of a rising interest rate scenario, the value of previously issued bonds goes down. As SBI debt MFs invest in bonds, they may perform well when a falling interest rate regime is in place.

Credit risk of portfolio constituents: Credit rating agencies in India analyse the creditworthiness of issuers of fixed-income securities and their capacity to pay back. Debt securities rated ‘AAA’ are considered to carry a low credit risk. Securities with a ‘C’ credit rating carry high default risk. High-risk portfolios, however, have the potential to deliver better returns.

Assets under management: Also known as AUM, it is the market value of investments held by an MF scheme. The best SBI debt mutual funds with larger assets under management or higher AUM usually stand in a better position to distribute their fixed fund expenses across investors.