Top Debt Funds

Debt Mutual Funds

Debt funds primarily invest in fixed instruments like bonds, etc. Ideal for creating a regular stream of income.
Risk: Low To MediumInvestment Horizon: Short To Medium Term
1Y return
UTI Credit Risk Fund Direct Plan Growth Option
UTI Credit Risk Fund Direct Plan Growth Option
21.07%
AUM ₹505 Cr Expense 0.87%
UTI Dynamic Bond Fund Direct Plan Growth Option
UTI Dynamic Bond Fund Direct Plan Growth Option
19.51%
AUM ₹367 Cr Expense 0.98%
Bank of India Short Term Income Fund Direct Plan Growth
Bank of India Short Term Income Fund Direct Plan Growth
17.76%
AUM ₹44 Cr Expense 0.87%
UTI Bond Fund Direct Plan Growth
UTI Bond Fund Direct Plan Growth
16.83%
AUM ₹293 Cr Expense 1.33%
Nippon India Strategic Debt Fund Direct Plan Growth Option
Nippon India Strategic Debt Fund Direct Plan Growth Option
16.56%
AUM ₹190 Cr Expense 1.4%
IDBI Credit Risk Fund Direct Growth
IDBI Credit Risk Fund Direct Growth
14.72%
AUM ₹32 Cr Expense 0.62%
Baroda BNP Paribas Credit Risk Fund Direct Growth
Baroda BNP Paribas Credit Risk Fund Direct Growth
13.7%
AUM ₹201 Cr Expense 0.85%
IDBI Short Term Bond Fund Direct Growth
IDBI Short Term Bond Fund Direct Growth
11.76%
AUM ₹30 Cr Expense 0.28%
Nippon India Credit Risk Fund Direct Plan Growth Option
Nippon India Credit Risk Fund Direct Plan Growth Option
11.57%
AUM ₹1022 Cr Expense 1%
UTI Banking & PSU Debt Fund Direct Plan Growth
UTI Banking & PSU Debt Fund Direct Plan Growth
9.49%
AUM ₹303 Cr Expense 0.17%
UTI - Treasury Advantage Fund - Direct Plan - Growth Option
UTI - Treasury Advantage Fund - Direct Plan - Growth Option
8.98%
AUM ₹2801 Cr Expense 0.28%
UTI - Short Term Income Fund - Direct Plan - Growth Option
UTI - Short Term Income Fund - Direct Plan - Growth Option
8.56%
AUM ₹2344 Cr Expense 0.34%
Nippon India Ultra Short Duration Fund Direct Growth Option
Nippon India Ultra Short Duration Fund Direct Growth Option
7.28%
AUM ₹3399 Cr Expense 0.33%
UTI - Ultra Short Term Fund - Direct Plan - Growth Option
UTI - Ultra Short Term Fund - Direct Plan - Growth Option
6.69%
AUM ₹1969 Cr Expense 0.37%
UTI Medium Term Fund - Direct Plan - Growth Option
UTI Medium Term Fund - Direct Plan - Growth Option
6.01%
AUM ₹59 Cr Expense 0.96%
ICICI Prudential Credit Risk Fund Direct Plan Growth
ICICI Prudential Credit Risk Fund Direct Plan Growth
5.53%
AUM ₹7946 Cr Expense 0.88%
Tata Dynamic Bond Fund Direct Plan Growth
Tata Dynamic Bond Fund Direct Plan Growth
5.35%
AUM ₹154 Cr Expense 0.27%
L&T Credit Risk Fund Direct Plan Growth
L&T Credit Risk Fund Direct Plan Growth
5.21%
AUM ₹163 Cr Expense 0.86%
Aditya Birla Sun Life Credit Risk Fund Direct Plan Growth
Aditya Birla Sun Life Credit Risk Fund Direct Plan Growth
5.2%
AUM ₹1214 Cr Expense 1.07%
Axis Credit Risk Fund Direct Growth
Axis Credit Risk Fund Direct Growth
4.85%
AUM ₹686 Cr Expense 0.81%
 

What are Debt Funds?

Debt funds, also known as Debt mutual funds, bond funds or fixed-income funds, are funds who invest in debt securities like government securities, corporate bonds, treasury bills etc. Debt mutual funds provide steady and continuous income to investors. The returns from debt mutual funds are not affected much by the market’s fluctuations as the money is invested in more secure instruments. Debt mutual funds are ideal for those who are looking for a safe investment instrument.

Features

There are certain features that make debt funds a unique kind of investment. The debt funds will have the following features:

Types of Debt Funds

Here are the various categories of debt funds that one can choose from:

Who should invest?

Debt mutual funds are considered best for investors with the following characteristics:

• Those who are risk averse and would like to invest their money in safe options and earn steady returns.

• Those who want to invest for a short-term like 3 months to a medium-term like 1-3 years.

• Those who seek stability in their portfolio as debt funds are not affected much by the market fluctuations.

• For those who are nearing retirement and do not want to take risks. Such investors can consider transferring their investment from equity mutual funds to debt mutual funds.

• Those who usually invest in saving accounts and fixed deposits but are now looking for better returns.

Things to consider as an investor before investing in Debt mutual funds.

Debt funds are an instrument that brings stability and safety to your investment portfolio. However, there are certain risks involved in debt funds. You should invest in a type of debt fund as per your risk appetite. Here are some points to consider before investing:
Risk: The risk can be of two types:

• Credit risk- As an investor, you should know that debt funds are also market-linked, so there are chances of defaulting. Fund managers sometimes invest in low-credit securities to get good returns, but this may attract the risk of default.

• Interest risk- The market interest rates can affect the type of debt funds you choose for the long term. An unexpected change in interest rates may affect the returns from debt funds. However, the above risks can be avoided by carefully observing the market. Having said that, the risk is less compared to equity mutual funds.

Returns: Returns on debt funds are based on the type of debt funds you have in your portfolio. Debt mutual funds are considered safe and give a steady return on investments. The returns may vary in the long term as shifts in interest rates may impact the returns on these debt funds.
Financial goals: If you have short-term financial goals and would like to invest in comparatively safer instruments and want higher returns than that earned on saving accounts and fixed deposits, you can invest in debt funds.
Investment Cost: This includes expense ratio and exit load. Investment companies charge a fee called expense ratio which includes management fees (fees of fund manager) and operational costs. Regular funds will always have higher expenses (as indicated by their expense ratio) due to added commission costs as compared to their direct counterparts. Debt funds have an expense ratio around 0.5 - 1.5%.

How to Invest in Debt Funds Online?

STEP 1
Download the INDmoney App
STEP 2
Create your profile
STEP 3
Select any best debt fund from our catalogue
STEP 4
Choose between Starting a SIP or One time lumpsum
STEP 5
Complete the payment process

Taxability

Debt investing is tax-efficient and attracts less tax than other investment instruments. Here are the tax aspects to be aware of:
With the best debt funds, you are liable to pay short-term capital gains if your investment period is less than 3 years. These are to be paid at your income slab rate.
If the investment period is more than 3 years, you will need to pay long-term capital gains tax. LTCGs are taxed at 20% with indexation benefits. However, the tax needs to be paid only at the time of redemption.
There is a tax advantage with debt investing. Let's understand this with the help of an example – Assume that you are debt investing and the fund gave you an 8% return, and the inflation rate is 5% during that period. You will only need to pay tax on the 3% of the debt mutual fund returns. There is no such provision in the case of fixed deposits.

How to evaluate debt funds?

Track record: If the fund has consistently outperformed its peers and the benchmark over a 3 year and 5-year horizon, it is an indication that the fund is well-managed. While past performance is no guarantee of the future returns, it is an important indicator about the track record of the fund, and helps in evaluation with respect to its peers.
Management: Management of the equity funds plays an important role in its performance. Hence, if you have confidence in the asset management company and they are doing an ideal job in necessitating growth, you can bank on this fund. Also, the reputation of the fund manager is an important factor to check.
Expense ratio attached to the funds: This is usually seen as a parameter against all kinds of funds. It is defined as the money undertaken by fund managers for maintenance, marketing, distribution and selling expenses, etc. The right fund will have a desirable expense ratio within the range of 0.5 to 2.5%, which is an ideal industry benchmark.
Asset allocation: One of the key things to look at is how diversified is your fund’s portfolio and where have they majorly invested in. Some funds may invest in more risky debt instruments to generate higher returns while others may invest in safer secturties like Government Bonds. Your risk and returns potential depends on the type of asset allocation you prefer.
Asset Under Management: Higher fund size is complicated to manage, and a smaller fund size lacks flexibility. The Asset under management should not be very high or very low. This allows the funds' manager to liquidate investment and navigate swiftly during turbulent times easily.

Outlook

Debt investing is a good option for steady and safe returns. From the information above, it is clear that your investment is more secure if you invest in debt funds. Everyone needs security when they age, so it is good to start investing in debt funds at a younger age. However, you should ensure to increase the debt fund percentage as you grow older. Debt funds are also market-linked, so understand the risk and keep an eye on it, especially if your debt funds are for a longer period.
Debt mutual funds in India are good for new investors as there is less risk and steady returns, so if you are looking to start your investment journey in mutual funds, debt mutual funds can be your first choice. The best debt funds give better returns than traditional saving plans like fixed and recurring deposits, so you can consider investing in debt mutual funds for short to medium periods.

Frequently Asked Questions

What are debt funds?

How to invest in debt funds online?

Are debt funds tax free?

Do debt funds pay dividends?

How to choose the best debt funds to invest?

What are the risks involved in investing in debt funds?

How long should I remain invested in debt funds?

Where do debt funds invest my money?

How much money should I invest in debt funds?

What are the expected returns of debt funds?

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