Best Debt Funds

Debt funds are also known as bond funds. These funds are invested in bonds and debt securities, and other fixed-income securities. Debts funds are among the safest money-making instruments if compared with equity funds and other market-related securities. Investments are made in debt funds mainly because of the capital appreciation and the low-cost structure. In addition, debt securities are highly liquid in nature. They are a better option for people looking for moderate income but a higher guarantee on their returns.

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It is suitable for all kinds of investors. Let us explore some of the best debt funds currently available in the market.

Best Debt Funds

Following is the list of top-performing debt funds in India: 

  1. Aditya Birla Sun Life Medium-Term Fund

    Aditya Birla SL Medium term fund was launched on 25th March 2009. The fund generates capital appreciation by investing in debt securities and medium-term maturity securities.

    It is an open-ended fund with an expense ratio of 1.58% and a total asset value of Rs. 1562 crores as of 30th November 2021. The income that generated after investing for one year is up to 7.82% per annum. 

  2. Edelweiss Banking and PSU Debt Fund

    Edelweiss Banking and PSU debt fund invests mainly in the debt securities and money-making instruments issued by banks, PSUs, and other center or state-owned financial institutions. It also invests in government municipal bonds. 

    The fund was launched on 13th September 2013. With a total asset value is Rs. 445 Crores as of 30th November 2021, the fund has a minimum expense ratio of 0.64%. Investors can get returns up to 15.65% after 1 year of investment.

  3. IDFC Government Securities Fund

    IDFC Government Securities fund was launched on 1st December 2008 to offer guaranteed capital appreciation through investments mainly in government securities. These securities are of different maturities to optimize the returns for the investors. 

    The capital that you invest in it is highly liquid in nature making it suitable for short-term or emergencies. The fund's total asset value is Rs. 1488 crores as of 30th November 2021 and has an expense ratio of 1.24%. Investors can yield returns up to 18.91% returns after 1 year of investment. 

  4. Nippon India Strategic Debt Fund

    Nippon India Strategic debt fund was launched in June 2014. The fund seeks to generate income by investing in various debt securities and money-making instruments. Debt funds that are chosen in the scheme are of various maturities so that investors can get maximum income. 

    Fund's asset value is Rs. 259 Crores as of 30th November 2021. Investors get up to 18.40% returns after investing in it for a year.

  5. Sundaram Short Term Debt Fund

    Sundaram Short Term debt fund was launched on 5th September 2002. It invests mainly in fixed income securities for capital appreciation purposes. It has an asset value of a total of Rs. 362 Crores as of 30th November 2021. 

    The expense ratio of the Sundaram Short-term debt fund is 1.01% that generates more income for the investors. You can yield up to 13.67% per annum after investing in it for a year. 

  6. UTI Bond Fund

    It aims to generate income for the investors through market-related security investments. UTI Bond Fund provides fixed income even after providing adequate liquidity. The Macaulay duration period of the UTI Bond Fund is between 4 years to 7 years. 

    The fund was launched on 17th May 1998. It has a total asset value is Rs. 292 Crores as of 30th November 2021 with an expense ratio is 1.62%. You get returns up to 10.09% after investing for one year.


  • Q. How are debt funds different from other market securities and mutual funds schemes?

    A. Debt funds are part of the mutual fund scheme. The principal debt funds are not different as they are also subject to market-related risk. When the market falls, the NAV of the company decreases. 
    As a result, equity funds face a sharp fall that means investors can lose their capital. Whereas the fall is slight with debt funds, so the investors do not lose their whole invested funds. 
    Debt funds, though assure higher security on the funds, generate moderate or lower income. 
  • Q. Who should invest in debt funds?

    A. There are no restrictions when it comes to investing in debt funds, and anyone can invest in them. Investors who are looking for stable income throughout the investment period can invest in debt funds. 
    These funds are also suitable for specific goals like children's education, weddings, or family trips. Debt funds are also suitable as an emergency fund because of their liquidity. 
  • Q. What is the maturity period of a short or ultra-short duration fund?

    A. Short or ultra-short duration funds have a shorter maturity period than regular debt funds. Short duration funds mature from 1 year to 3 years period, whereas ultra-short duration funds mature over the period of 3 to 6 months.
  • Q. Is there any tax rebate or exemption on the income generated by debt funds?

    A. No, there are no tax exemptions on the income generated by debt funds. Income will be added to your taxable income, and you will have to pay tax as per your income tax slab. 
    As long as you keep holding on to the unit of debt fund, you don't have to pay any tax on it. Once you sell the unit or the maturity of the debt fund, you will be taxed under the 20% income tax slab. 
  • Q. How to invest in debt funds?

    A. You need to create an account for the investment and get your KYC done. You can invest in a debt fund through a distributor or on your own. You can follow investment options for investing in a debt fund. 
    You can either invest through a lump sum, or you can choose a systematic investment plan (SIP). SIP plan frequency varies depending upon the fund's maturity period. You can choose from daily, weekly, and monthly investment plans. 
    For SIP, you can make arrangements for the amount to be directly deducted from your account, or you can write post-dated cheques. You can even make an online transfer.  
  • Q. What is the expense ratio in a mutual fund?

    A. The expense ratio is the percentage of the amount charged by the fund manager for managing your fund. This includes all the documentation charges and other administrative overheads. The expense ratio is lower in a direct plan as the investment is made directly. 
    On the other hand, the expense ratio of the regular plan of a mutual fund is higher as the distributor also gets his/her share in the expense ratio. It is deducted from the returns that are generated over the course of the period. A lower expense ratio indicates higher returns for the investors and vice versa.
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