Debt Mutual Funds

Best Debt Mutual Funds

The Best debt mutual funds with their returns are subject to interest rate changes and the credit quality of the assets. Some of the top 10 debt mutual fund options in 2025 are:

1. HDFC Income Plus Arbitrage Active FoF Regular - Growth

   This is a Fund of Funds (FoF) scheme that invests in the units of other arbitrage and debt mutual fund schemes. Its primary objective is to generate income and long-term capital appreciation.

   Parameters	Details
   Fund Name	HDFC Income Plus Arbitrage Active FoF Regular-Growth
   NAV	₹ 39.93 (as on 1st January, 2026)
   AUM	₹1,384.27 Crs
   Expense Ratio	0.42%
   Return 5 Years	14.79%
   Minimum Investment	SIP ₹1000 & Lumpsum ₹100
   Risk Level	Principal at moderate risk
   Launch Date	6th February, 2012
   Asset Allocation	Equity: -0.18%, Debt: 66.99%, Others: 33.19%
   Top Sectors	Real Estate Technology Consumer Discretionary Industrials Consumer Staples Diversified Energy & Utilities Financial Healthcare Materials
   Top Holdings	HDFC Medium Term Opportunities Direct Plan-Growth HDFC Arbitrage Fund Wholesale Direct-Growth HDFC Money Market Fund Direct-Growth Repo Net Payables
   Fund Managers	NA
   Fund Type	Open-ended

2. Aditya Birla Sun Life Medium Term Plan Regular - IDCW

   It aims to generate regular income and capital appreciation. It achieves this by predominantly investing in a portfolio of debt and money market securities. 

   Parameters	Details
   Fund Name	Aditya Birla Sun Life Medium Term Plan Regular-IDCW
   NAV	₹ 16.67 (as on 1st January, 2026)
   AUM	₹2,744.47 Crs
   Expense Ratio	1.57%
   Return 5 Years	11.88%
   Minimum Investment	SIP ₹1000 & Lumpsum ₹1,000
   Risk Level	Principal at moderately high risk
   Launch Date	25th March, 2009
   Asset Allocation	Debt: 91.1%, Others: 4.73%
   Top Sectors	NA
   Top Holdings	GOVERNMENT OF INDIA 35031 GOI 07OT34 6.79 FV RS 100 GOVERNMENT OF INDIA 34208 GOI 08AP34 7.1 FV RS 100 GOI Sec 7.18 14/08/2033 NUVAMA WEALTH FINANCE LIMITED SR NWFL200824/05 9.75 NCD 16AP27 FVRS1LAC Net Receivables GMR AIRPORTS LIMITED 5 BD 13FB27 FVRS1LAC JUBILANT BEVCO LIMITED NCD 31MY28 FVRS1LAC JTPM METAL TRADERS LIMITED NCD 30AP30 FVRS1LAC INDIAN RAILWAY FINANCE CORPORATION LIMITED SR 188 7.17 BD 27AP35 FVRS1LAC NATIONAL BANK FOR FINANCING INFRASTRUCTURE AND DEVELOPMENT SR NABFID2023 1 7.43 BD 16JU33 FVRS1LAC
   Fund Managers	Sunaina da Cunha Mohit Sharma
   Fund Type	Open-ended

3. Nippon India Credit Risk Fund Direct - Growth

   This fund aims to generate optimal returns by primarily investing in debt and money market instruments. It focuses on accrual-based returns by taking calculated, well-researched exposures.

   Parameters	Details
   Fund Name	Nippon India Credit Risk Fund Direct-Growth
   NAV	₹ 40.12 (as on 1st January, 2026)
   AUM	₹1,013.53 Crs
   Expense Ratio	0.69%
   Return 5 Years	9.45%
   Minimum Investment	SIP ₹1000 & Lumpsum ₹500
   Risk Level	Principal at moderately high risk
   Launch Date	NA
   Asset Allocation	Debt: 94.98%, Others: 5.02%
   Top Sectors	NA
   Top Holdings	GOVERNMENT OF INDIA 34587 GOI 18JU31 7.02 FV RS 100 Repo RENEW SOLAR ENERGY (JHARKHAND FIVE) PRIVATE LIMITED 8.44 NCD 31AG29 FVRS1LAC JUBILANT BEVCO LIMITED NCD 31MY28 FVRS1LAC SHRIRAM HOUSING FINANCE LIMITED SR 35 9.25 NCD 04OT27 FVRS1LAC MANCHERIAL REPALLEWADA ROAD PRIVATE LIMITED SR B 8.28 RR NCD 31MR31 FVRS90420 PRESTIGE PROJECTS PRIVATE LIMITED 11.75 NCD 05MR27 FVRS1LAC THE SANDUR MANGANESE AND IRON ORES LIMITED 11 NCD 30SP31 FVRS1LAC BAMBOO HOTEL AND GLOBAL CENTRE (DELHI) PRIVATE LIMITED SR I 10.81 NCD 31JN28 FVRS1LAC DELHI INTERNATIONAL AIRPORT LIMITED RR NCD 22AG30 FVRS1LAC
   Fund Managers	NA
   Fund Type	Open-ended

4. ICICI Prudential Medium Term Bond Fund Direct Plan - Growth

   An open-ended medium-duration debt fund that seeks to generate income by investing across a range of debt and money market instruments. The scheme's goal is to maintain an optimum balance of yield, safety, and liquidity.

   Parameters	Details
   Fund Name	ICICI Prudential Medium Term Bond Fund Direct Plan-Growth
   NAV	₹ 51.32 (as on 1st January, 2026)
   AUM	₹5,687.83 Crs
   Expense Ratio	0.74%
   Return 5 Years	7.57%
   Minimum Investment	SIP ₹1000 & Lumpsum ₹5,000
   Risk Level	Principal at moderately high risk
   Launch Date	NA
   Asset Allocation	Debt: 84.94%, Others: 8.51%
   Top Sectors	NA
   Top Holdings	GOVERNMENT OF INDIA 34208 GOI 08AP34 7.1 FV RS 100 Embassy Office Parks REIT Cash Margin GOVERNMENT OF INDIA 34238 GOI 22AP64 7.34 FV RS 100 ADANI ENTERPRISES LIMITED 8.70 NCD 24MR28 FVRS1LAC VEDANTA LIMITED SR 1 9.40 NCD 20FB27 FVRS1LAC Repo GOVERNMENT OF INDIA 35031 GOI 07OT34 6.79 FV RS 100 GODREJ PROPERTIES LIMITED SR 1 8.40 NCD 25JN28 FVRS1LAC OBEROI REALTY LIMITED SR 3 8.05 NCD 24OT28 FVRS1LAC
   Fund Managers	Akhil Kakkar Manish Banthia
   Fund Type	Open-ended

5. Axis Corporate Bond Fund Regular - Growth

   This Corporate Bond Fund predominantly invests in high-quality corporate bonds rated AA+ and above, making it a scheme focused on high credit quality and liquidity in the corporate debt segment.

   Parameters	Details
   Fund Name	Axis Corporate Bond Fund Regular-Growth
   NAV	₹ 17.59 (as on 1st January, 2026)
   AUM	₹9,402.54 Crs
   Expense Ratio	0.95%
   Return 5 Years	6.19%
   Minimum Investment	SIP ₹1000 & Lumpsum ₹100
   Risk Level	Principal at moderate risk
   Launch Date	13th July, 2017
   Asset Allocation	Debt: 96.47%, Others: 3.53%
   Top Sectors	NA
   Top Holdings	GOVERNMENT OF INDIA 35031 GOI 07OT34 6.79 FV RS 100 GOI Sec 7.18 14/08/2033 GOVERNMENT OF INDIA 34208 GOI 08AP34 7.1 FV RS 100 Net Receivables NATIONAL BANK FOR AGRICULTURE AND RURAL DEVELOPMENT SR 25E 7.53 BD 24MR28 FVRS1LAC Others CBLO BAJAJ HOUSING FINANCE LIMITED 7.02 NCD 26MY28 FVRS1LAC SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA SR VII 7.42 BD 12MR29 FVRS1LAC SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA SR IX 7.68 BD 10AG27 FVRS1LAC SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA SR III 7.34 BD 26FB29 FVRS1LAC
   Fund Managers	Devang Shah Hardik Shah
   Fund Type	Open-ended

6. ICICI Prudential Medium Term Bond Fund Direct Plan - Growth

   This is a dynamic debt fund that actively manages the portfolio's maturity and duration. The objective is to generate income by investing in a range of debt and money market instruments of various durations, adjusting.

   Parameters	Details
   Fund Name	ICICI Prudential Medium Term Bond Fund Direct Plan-Growth
   NAV	₹ 51.32 (as on 1st January, 2026)
   AUM	₹5,687.83 Crs
   Expense Ratio	0.74%
   Return 5 Years	7.57%
   Minimum Investment	SIP ₹1000 & Lumpsum ₹5,000
   Risk Level	Principal at moderately high risk
   Launch Date	NA
   Asset Allocation	Debt: 84.94%, Others: 8.51%
   Top Sectors	NA
   Top Holdings	GOVERNMENT OF INDIA 34208 GOI 08AP34 7.1 FV RS 100 Embassy Office Parks REIT Cash Margin GOVERNMENT OF INDIA 34238 GOI 22AP64 7.34 FV RS 100 ADANI ENTERPRISES LIMITED 8.70 NCD 24MR28 FVRS1LAC VEDANTA LIMITED SR 1 9.40 NCD 20FB27 FVRS1LAC Repo GOVERNMENT OF INDIA 35031 GOI 07OT34 6.79 FV RS 100 GODREJ PROPERTIES LIMITED SR 1 8.40 NCD 25JN28 FVRS1LAC OBEROI REALTY LIMITED SR 3 8.05 NCD 24OT28 FVRS1LAC
   Fund Managers	Akhil Kakkar Manish Banthia
   Fund Type	Open-ended

7. Franklin India Corporate Debt Fund Direct - Growth

   The fund aims to generate returns through interest accrual and capital gains from interest rate movements, focusing on maintaining a high-quality, high-rated credit portfolio.

   Parameters	Details
   Fund Name	Franklin India Corporate Debt Fund Direct-Growth
   NAV	₹ 111.71 (as on 1st January, 2026)
   AUM	₹1,108.76 Crs
   Expense Ratio	0.25%
   Return 5 Years	6.77%
   Minimum Investment	SIP ₹1000 & Lumpsum ₹10,000
   Risk Level	Principal at moderate risk
   Launch Date	1st January, 2013
   Asset Allocation	Debt: 79.39%, Others: 20.61%
   Top Sectors	NA
   Top Holdings	Cash Margin Cash/Net Current Assets GOVERNMENT OF INDIA 35840 GOI 15AP65 6.9 FV RS 100 NATIONAL BANK FOR AGRICULTURE AND RURAL DEVELOPMENT SR 23H 7.58 LOA 31JL26 FVRS1LAC POONAWALLA FINCORP LIMITED SR G1 TR 1 7.55 NCD 25MR27 FVRS1LAC JUBILANT BEVCO LIMITED NCD 31MY28 FVRS1LAC HDFC BANK LIMITED SR P016 8.46 NCD 15JU26 FVRS1CR SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA SR VIII 7.54 BD 12JN26 FVRS10LAC SUMMIT DIGITEL INFRASTRUCTURE LIMITED 7.87 NCD 15MR30 FVRS1LAC REC LIMITED SR 205B 5.94 BD 31JN26 FVRS10LAC
   Fund Managers	Rahul Goswami Anuj Tagra Chandni Gupta
   Fund Type	Open-ended

8. ICICI Prudential Gilt Fund Direct Plan - Growth

   This is a gilt fund that invests exclusively in government securities across different maturities. It aims to generate steady and consistent returns by proactively managing the portfolio's duration. 

   Parameters	Details
   Fund Name	ICICI Prudential Gilt Fund Direct Plan-Growth
   NAV	₹ 113.24 (as on 1st January, 2026)
   AUM	₹7,330.23 Crs
   Expense Ratio	0.56%
   Return 5 Years	6.99%
   Minimum Investment	SIP ₹1000 & Lumpsum ₹5,000
   Risk Level	Principal at moderate risk
   Launch Date	NA
   Asset Allocation	Debt: 32.66%, Others: 67.34%
   Top Sectors	NA
   Top Holdings	Cash Margin GOVERNMENT OF INDIA 35840 GOI 15AP65 6.9 FV RS 100 CENTRAL GOVERNMENT LOAN 23277 GOI 22SP33 FLT FV RS 100 GOVERNMENT OF INDIA 34238 GOI 22AP64 7.34 FV RS 100 GOVERNMENT OF INDIA 34208 GOI 08AP34 7.1 FV RS 100 GOVERNMENT OF INDIA 35031 GOI 07OT34 6.79 FV RS 100 GOVERNMENT OF INDIA 36320 GOI 18AG55 7.24 FV RS 100 Repo GOVERNMENT OF INDIA 34859 364 DAYS TBILL 28AG25 FV RS 100 Reverse Repo
   Fund Managers	Manish Banthia Raunak Surana
   Fund Type	Open-ended

9. Kotak Medium Term Fund Regular - Growth

   It invests in medium-term debt and money market instruments with a Macaulay duration between 3 and 4 years, often utilizing a Hold-Till-Maturity (HTM) strategy for stability.

   Parameters	Details
   Fund Name	Kotak Medium Term Fund Regular-Growth
   NAV	₹ 23.63 (as on 1st January, 2026)
   AUM	₹1,817.07 Crs
   Expense Ratio	1.63%
   Return 5 Years	6.6%
   Minimum Investment	SIP ₹1000 & Lumpsum ₹100
   Risk Level	Principal at moderately high risk
   Launch Date	21st March, 2014
   Asset Allocation	Debt: 87.52%, Others: 4.55%
   Top Sectors	NA
   Top Holdings	GOVERNMENT OF INDIA 34208 GOI 08AP34 7.1 FV RS 100 GOI Sec 7.18 14/08/2033 Repo JTPM METAL TRADERS LIMITED NCD 30AP30 FVRS1LAC L&T METRO RAIL (HYDERABAD) LIMITED 7.55 NCD 28AP35 FVRS1LAC BAMBOO HOTEL AND GLOBAL CENTRE (DELHI) PRIVATE LIMITED SR I 10.81 NCD 31JN28 FVRS1LAC Embassy Office Parks REIT TATA STEEL LIMITED SR 2 7.76 NCD 20SP32 FVRS10LAC PIPELINE INFRASTRUCTURE LIMITED SR 3 7.96 NCD 11MR29 FVRS1LAC ADITYA BIRLA RENEWABLES LIMITED 8.6 NCD 24SP27 FVRS1LAC
   Fund Managers	Deepak Agrawal Vihag Mishra
   Fund Type	Open-ended

10. Aditya Birla Sun Life Floating Rate Direct Fund - Growth

    This is a floating-rate debt scheme whose main goal is to generate regular income. It invests substantially in floating-rate debt and money market instruments. The nature aims to minimize the impact of interest rate changes on NAV.

    Parameters	Details
    Fund Name	Aditya Birla Sun Life Floating Rate Direct Fund-Growth
    NAV	₹ 369.83 (as on 1st January, 2026)
    AUM	₹13,619.76 Crs
    Expense Ratio	0.22%
    Return 5 Years	6.53%
    Minimum Investment	SIP ₹1000 & Lumpsum ₹1,000
    Risk Level	Principal at low to moderate risk
    Launch Date	1st January, 2013
    Asset Allocation	Debt: 95.76%, Others: 4.24%
    Top Sectors	NA
    Top Holdings	CENTRAL GOVERNMENT LOAN 23277 GOI 22SP33 FLT FV RS 100 Reverse Repo BHARTI TELECOM LIMITED SR XXVII 7.30 NCD 01DC27 FVRS1LAC NATIONAL BANK FOR AGRICULTURE AND RURAL DEVELOPMENT SR 25G 7.48 BD 15SP28 FVRS1LAC KNOWLEDGE REALTY TRUST 7.2 NCD 26SP28 FVRS1LAC HDFC BANK LIMITED CD 24MAR26 NATIONAL BANK FOR AGRICULTURE AND RURAL DEVELOPMENT SR 25A 7.70 BD 30SP27 FVRS1LAC Net Receivables BAJAJ HOUSING FINANCE LIMITED 8.10 NCD 08JL27 FVRS1LAC REC LIMITED SR 237 7.55 BD 31OT26 FVRS1LAC
    Fund Managers	Kaustubh Gupta Harshil Suvarnkar
    Fund Type	Open-ended

Who Should Invest In Debt Mutual Funds?

Debt mutual funds are an ideal investment for individuals and entities who prioritize relative safety, stability, and liquidity over aggressive, high-growth returns.

1. The Risk-Averse Investor: 

   Most suitable for those prioritizing the safer side of mutual funds. They offer the least risk as they invest in fixed-income assets.

2. Seeking Better-Than-Bank Returns: 

   Ideal for investors who want stable returns that are higher than bank deposits but still seek minimal impact from market risks.

3. Short-Term Financial Planners: 

   Excellent for individuals with a short-term horizon (up to a few years). They are stable vehicles for emergency funds and upcoming expenses, prioritizing accessibility.

4. Comfortable with Moderate Returns: 

   Suitable for investors who accept moderate risk and corresponding lower returns. They prioritize the security of their principal over aggressive growth.

Benefits of Investing in Debt Mutual Funds

The major advantages of debt mutual funds are listed below: 

1. High Liquidity & Flexibility: 

   Most debt funds, especially Liquid funds and Overnight funds, allow investors to redeem units anytime. Investors can also withdraw partially without disturbing their investment.

2. Insulation from Stock Market Volatility: 

   Since the corpus is mainly allocated to bonds and other fixed-income instruments, stock market fluctuations do not significantly impact returns. It makes them suitable for risk-averse investors.

3. Superior Investment Methods: 

   Investors have the flexibility to choose between a lump-sum investment or investing small amounts regularly via a Systematic Investment Plan (SIP).

4. Tax Deferral Benefit: 

   Unlike bank FDs, where interest is taxed every year, income from debt funds is only taxed when you redeem the units, allowing you to defer your tax liability until the withdrawal date.

5. Credit Quality Visibility: 

   Debt instruments are rated by agencies. Investors can easily check the credit quality rating of the underlying securities to gauge the scheme's associated credit risk level before investing.

6. Loss Carry-Forward: 

   Gains are treated as capital gains, allowing investors to set off losses from debt fund redemptions against other capital gains, and potentially carry them forward to future years.

Taxation of Debt Mutual Funds 

The tax treatment for gains from debt mutual funds depends entirely on whether the investment was made before or after April 1, 2023.

1. Investments Acquired ON or AFTER April 1, 2023

   • All capital gains, regardless of the holding period, are classified as Short-Term Capital Gains (STCG).
   • The gains are added to your gross income and taxed at your applicable income tax slab rate.
   • The benefit of indexation is not available for these newer investments.

2. Investments Acquired BEFORE April 1, 2023

   The tax outcome depends entirely on the redemption (sale) date:

   If Sold BEFORE July 23, 2024:

   • STCG: If held up to 36 months, taxed at your income slab rate.
   • LTCG: If held more than 36 months, taxed at 20% with indexation benefit.

If Sold ON or AFTER July 23, 2024:

• STCG: If held up to 24 months, taxed at your income slab rate.
• LTCG: If held more than 24 months, taxed at 12.50%.

Conclusion

Debt Mutual Funds are great investment options for individuals prioritizing capital preservation and stable returns over equity volatility. They offer superior liquidity, tax deferral, and higher returns than an FD. Investors must be aware that the indexation tax advantage is removed for investments made after April 1, 2023. Successful investment requires specific risk to your short-to-medium-term goals, and using a SIP Calculator helps you project future corpus growth and determine the monthly investment needed.