Best Debt Mutual Funds
To simply put what are debt mutual funds, these are a type of mutual fund that earn returns by lending the investor’s money to governments and companies. Known for their low costs and steady returns, these funds primarily invest in fixed-income assets like bonds, securities and money market instruments. For instance, Banking and PSU debt funds stand out as they dedicate at least 80% of their investments to banks, public sector units and financial institutions.
Here’s a closer look at some of the best debt mutual funds to help you invest wisely.
Benefits of Investing in the Best Debt Mutual Funds
You can reap the below-mentioned benefits by investing in the best debt mutual funds:
- Stability: Debt instruments are associated with negligible risks as they are not linked to the market, unlike stocks. This ensures stability for the investors in terms of returns.
- High Liquidity: Investors can seamlessly redeem unit holdings any time after purchase. As a result, debt mutual funds offer high liquidity, unlike funds with a lock-in period.
- Option for Partial Withdrawal: Investors can redeem their holdings partially while the remaining continues to earn returns. Thus, they can utilise the withdrawn funds while still accumulating a corpus for the future.
Things to Remember While Investing in the Best Debt Mutual Funds
Here are the things to remember while investing in the best debt mutual funds:
- While debt funds offer stable returns, the returns you earn are taxable. Ensure you are aware of the debt mutual fund taxation rate before making a choice.
- Debt funds entail different tenures of investment. Ensure you invest in a debt fund that aligns with your financial goals in terms of tenure.
An Overview of Best Debt Mutual Funds
Here is a quick overview of some of the best debt mutual funds that you must check out in 2025 for safe investing:
1. Aditya Birla Sun Life Medium Term Plan
Aditya Birla Sun Life Medium Term Plan (Direct Growth) is managed by an experienced fund manager team of Dhaval Joshi, Sunaina da Cunha and Mohit Sharma. It attracts an exit load of 2% if you redeem before 365 days and 1% if you sell before 730 days.
- Asset Under Management: ₹2,144.49 crore approximately
- Benchmark: CRISIL Medium Duration Debt A-III Index
- Expense Ratio: 0.86%
2. SBI Magnum Gilt Fund
SBI Magnum Gilt Fund (Direct Growth) invests 97.72% in government securities. The remaining 2.28% of the investment portfolio is invested in cash and cash equivalents. You can start investing in this fund with a SIP of ₹500 per month or opt for a lump sum investment of ₹5,000.
- Asset Under Management: ₹11,226.48 crore approximately
- Benchmark: Nifty All Duration G-Sec Index
- Expense Ratio: 0.46%
3. ICICI Prudential Gilt Fund
ICICI Prudential Gilt Fund (Direct Growth) invests 94.41% of its portfolio in government securities. Its portfolio is managed by Manish Banthia and Raunak Surana.
- Asset Under Management: ₹6,355.81 crore approximately
- Benchmark: Nifty All Duration G-Sec Index
- Expense Ratio: 0.56%
4. ICICI Prudential Short Term Fund
ICICI Prudential Short Term Fund (Direct Growth) includes a 97.37% debt component wherein 28% is government securities and 69.3% is in lower risk securities. Manish Banthia and Nikhil Kabra are the fund managers responsible for generating returns from this scheme.
- Asset Under Management: ₹20,112.23 crore approximately
- Benchmark: Nifty Short Duration Debt Index A-II
- Expense Ratio: 1.02%
5. ICICI Prudential All Seasons Bond Fund
ICICI Prudential All Seasons Bond Fund (Direct Growth) invests 53.29% in government securities and 42.21% in low-risk securities, thereby investing a total of 95.47% in debt instruments. This fund charges 0.25% as an exit load if you redeem it before 30 days from the investment date.
- Asset Under Management: ₹13,643.93 crore approximately
- Benchmark: Nifty Composite Debt Index A-III
- Expense Ratio: 0.59%
Key Takeaway
The best debt mutual funds in India offer stable returns with lower risk, helping investors diversify their portfolios. While equity mutual funds offer higher returns but come with greater risk, debt mutual funds provide stability and balance. The key difference between equity and debt mutual funds lies in the risk-return ratio. Choosing debt funds can help optimise risks in a diversified portfolio.
Frequently Asked Questions
1. Who can invest in the best debt mutual funds?
Investors with a low-risk appetite (conservative investors) mostly prefer debt funds. In addition, investors planning to invest for a short time horizon can consider investing in the best debt mutual funds.
2. Are debt funds risk-free?
Certain debt funds such as overnight or liquid funds entail negligible risk. However, other debt funds are associated with certain risks. Ensure you invest in debt funds with calculated risks.
3. Where do debt mutual funds invest?
The best debt mutual funds usually invest in government securities, treasury bills, corporate bonds, commercial papers and other fixed-income money market instruments.
4. Do debt funds give fixed returns?
No, debt mutual fund returns are subject to market risks and may fluctuate based on the performance of the underlying instruments. Investors are exposed to defaults or credit issues from the companies they invest in. However, they are less volatile when compared with equity funds.
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