Best Debt Mutual Funds to invest in India 2024
Many investors opt for debt mutual funds as a low-risk investment option that offers steady returns. Regardless of their experience level—whether they are seasoned investors or newcomers—anyone can benefit from these funds. Debt mutual funds are considered one of the safest investment choices, especially when compared to equity investments.
This article will guide you through the best-performing debt mutual funds, especially for long-term investments, and help you understand how to choose the best debt mutual funds in India.
Before that, let’s understand
What Are Debt Mutual Funds?
Debt mutual funds are investment instruments that primarily invest in fixed-income securities, such as bonds, government securities, treasury bills, and corporate debt. Because these funds mainly focus on earning income by generating interest rather than capital gains, they are less risky than an equity mutual fund.
The returns are more stable, which makes them an ideal choice for conservative investors or those with financial goals for the short to medium term. However, some of the best long-term debt mutual funds in India also cater to those looking to invest for more than five years.
List of Debt Mutual Funds in India
| Fund Name | Crisil Rating | AuM (Cr) | 1M | 3M | 6M | YTD | 1Y | 2Y | 3Y | 5Y |
| Canara Robeco Savings Fund – Direct Plan – Growth | 5 | 843.31 | 1.96% | 3.83% | 6.19% | 7.71% | 7.52% | 6.15% | 5.82% | 6.94% |
| Aditya Birla Sun Life Banking & PSU Debt Fund | 5 | 9,341.66 | 0.93% | 2.51% | 4.65% | 6.95% | 8.66% | 7.93% | 6.27% | 7.00% |
| Invesco India Gilt Fund – Direct Plan – Growth | 3 | 1,195.84 | 3.33% | 7.09% | 10.35% | 13.03% | 9.80% | 7.27% | 6.39% | 7.92% |
| Invesco India Money Market Fund – Direct Plan – Growth | 3 | 4,350.98 | 1.86% | 3.65% | 6.10% | 7.58% | 7.48% | 6.13% | 5.79% | 6.86% |
| ICICI Prudential Banking & PSU Debt Fund | 5 | 8,929.75 | 0.85% | 2.13% | 4.26% | 6.61% | 8.16% | 7.93% | 6.61% | 7.17% |
| ICICI Prudential Corporate Bond Fund | 5 | 26,853.66 | 0.89% | 2.29% | 4.43% | 6.79% | 8.38% | 8.09% | 6.71% | 7.29% |
| UTI Credit Risk Fund – Direct Plan – Growth | 5 | 330.25 | 0.73% | 2.77% | 4.73% | 7.13% | 8.73% | 8.25% | 6.68% | 4.15% |
| Bandhan Dynamic Bond Fund – Direct Plan – Growth | 5 | 2,916.60 | 0.78% | 3.35% | 7.52% | 10.85% | 13.61% | 10.11% | 6.79% | 7.49% |
| Aditya Birla Sun Life Floating Rate Fund – Direct Plan | 5 | 12,681.31 | 0.89% | 2.12% | 4.07% | 6.65% | 8.21% | 7.95% | 6.65% | 7.67% |
| ICICI Prudential Gilt Fund – Direct Plan – Growth | 5 | 6,633.27 | 0.72% | 2.64% | 5.22% | 7.32% | 9.23% | 8.86% | 7.06% | 8.00% |
| Canara Robeco Liquid Fund – Direct Plan – Growth | 5 | 2,817.09 | 0.61% | 1.79% | 3.58% | 5.89% | 7.45% | 7.23% | 6.21% | 6.27% |
| DSP Low Duration Fund – Direct Plan – Growth | 5 | 5,166.41 | 0.78% | 1.99% | 3.89% | 6.27% | 7.76% | 7.53% | 6.23% | 6.02% |
| Nippon India Income Fund – Direct Plan – Growth | 5 | 427.04 | 0.71% | 2.99% | 5.81% | 8.18% | 10.66% | 9.04% | 6.83% | 8.37% |
| Canara Robeco Ultra Short Term Fund – Direct Plan | 5 | 687.13 | 0.72% | 1.83% | 3.60% | 5.88% | 7.30% | 7.11% | 5.98% | 6.47% |
Source: MoneyControl & Groww
Types of Debt Mutual Funds
While investing in the various types of debt mutual funds, one must be well aware of the reasons for the same. Different types of funds serve different financial objectives, which may include tenure and a specific risk that one is willing to undertake.
1. Liquid Funds
Liquid funds invest in money market instruments and short-term debt securities of maturities up to 91 days. They are suitable for an investor who desires high liquidity and minimal risks. The returns are better than what a savings bank account can yield, hence a great fit for parking any short-term cash.
2. Short-Term Debt Funds
As the name suggests, short-term debt funds invest in debt instruments that have a maturity period of one to three years. The funds are less volatile than long-term debt funds and thus ideal for conservative investors.
3. Corporate Bond Funds
Corporate bond funds invest at least 80% of their overall assets in top-rated corporate bonds. Generally safer than other debt funds, these funds give stability in returns through investment in good quality corporate debt; therefore, they are a good avenue for risk-averse investors.
4. Dynamic Bond Funds
There are no specific maturity dates for dynamic bond funds. The portfolio is continuously managed by fund managers depending upon the changing interest rate scenario. This type of fund is ideal for investors who have some flexibility in terms of time horizon of their investment and can afford to take some amount of risk for getting extra returns.
5. Long-Term Debt Funds
Long-term debt funds are available, which invest in securities where the maturity period is more than five years. For long-term financial objectives, particularly retirement plans, investing in mutual funds is a suitable option. Among the debt mutual funds available for long-term investment, some of the best options effectively balance safety and returns.
6. Gilt Funds
Gilt funds invest 80% in government securities, that securities are considered to be risk-free. These funds are best for those looking for safety over high returns.
How to Choose the Best Debt Mutual Funds?
The best debt mutual funds in India basically vary based on the investment objective, the risk that you can tolerate, and the investment horizon. Here are a few factors by which you must compare while selecting them:
1. Investment Horizon
Liquid or short-term debt funds are ideal for short-term investment horizons. However, for long-term investment horizons, best long-term debt mutual funds in India, like dynamic funds or corporate bond funds may go better.
2. Risk Tolerance
Though debt funds are less risky compared with equities, the former is not absolutely risk-free either. Interest rate reversals, credit risk, and inflation would also hurt your returns. So, assess your risk appetite before settling with a debt fund.
3. Expense Ratio
Annual expense ratio : This is the yearly fee charged by the fund for managing your investment. A high expense ratio takes a slice of your returns every year. Opt for funds with a relatively low expense ratio for you to enjoy the best returns.
4. Past Performance
While past performance is not always indicative of future results, it’s still a useful metric. Look for funds that have consistently performed well over a long period. The best-performing debt mutual funds usually have a track record of delivering stable returns.
5. Credit Quality of Portfolio
It’s important to examine the credit quality of the debt instruments that the fund invests in. Funds that invest in higher-rated securities (like AAA-rated corporate bonds) are safer but may offer slightly lower returns than those investing in lower-rated instruments.
Also read: Best Bonds to Invest in India
Advantages | Disadvantages |
Liquidity: Investors can redeem units anytime, with funds credited within a day. | Interest Rate Risk: Changes in market interest rates can negatively affect returns, especially for long-term funds. |
Partial Withdrawal: Withdraw partially without disturbing the rest of the investment. | Credit Risk: There’s a chance that bonds within the debt fund could default on interest or principal payments. |
Flexible Investment Options: Investors can choose between lump-sum or SIP investments. | Exit Load: Some funds impose an exit load if redeemed before a specified time. |
Market Stability: Returns are less affected by stock market fluctuations, as funds are largely allocated to debt instruments. | Tax Implications on Short-Term Gains: Gains sold within 3 years are taxed as per the investor’s income tax slab. |
Tax Efficiency: Gains are only taxed upon redemption, and indexation benefits apply if held for more than 3 years. | Not Completely Risk-Free: Even the safest debt funds carry market risks |
Credit Quality Rating: Debt instruments are rated by credit agencies, this helps investors understand the risk level of a fund. |
FAQs
- What is the best benefit of investing in debt mutual funds?
The primary benefit of investing in debt mutual funds is that they provide liquidity. Debt mutual fund units can be redeemed by investors at any time and funds will be credited to their bank account within a day. Apart from the liquidity benefits, they are less affected by stock market fluctuations hence generally stable compared to equity funds.
- Do debt mutual funds carry no risks whatsoever?
No, while debt mutual funds are considered safer than equity mutual funds, they still carry risks such as interest rate risk and credit risk.
- How are debt mutual funds more tax-efficient than fixed deposits?
In debt mutual funds, gains are taxed only when the investor redeems their units, unlike fixed deposits where the income is taxed annually.
- What should I check before investing in debt mutual funds?
Before investing, you should evaluate the credit quality rating of the debt instruments within the fund, as rated by credit rating agencies.
