Best Debt Funds 2022 – Top 10 Performing Debt Mutual Funds (2024)

Debt funds are a type of mutual fund that generate steady income in the form of dividend on the bond funds. There are various types of debt mutual funds that have varying risk-return portfolios, financial goals, and investment horizons. This type of fund is highly liquid and you can consider investing in the best debt mutual funds to get the units redeemed easily.

Debt mutual funds predominantly invest in fixed-income instruments such as treasury bills, corporate bonds, government securities, and other debt and money market instruments.

What are Best Debt Mutual Funds?

Debt mutual funds majorly invest in fixed interest-earning instruments such as treasury bills and certificate of deposits. The main intention of these funds is to generate wealth in the form of interest income and steady appreciation of the capital invested in the long run. The underlying assets generate a fixed rate of interest over the tenure for which investors stay invested in the fund.

A debt fund manager invests predominantly in the underlying assets based on their respective credit ratings. A higher credit rating indicates that debt security has a higher chance of paying interest regularly along with the repayment of the principal upon expiry of the investment tenure. Apart from that, the fund manager aligns his investment strategy as per the interest rate movements.

Features of Debt Mutual Funds

Here are the key features of a debt mutual fund:

  • The risk associated with the debt mutual fund is comparatively lower than other financial instruments like equity funds. Since these schemes offer stability to investors, therefore it is an excellent avenue of investment for new investors.
  • Debt mutual funds do not have a definite lock-in period. As a result, it can be redeemed within one or two days of placing the request for redemption.
  • These funds can be available throughout a variety of credit risk and maturity. There are shorter duration funds, liquid funds, overnight funds, low duration funds, etc.
  • You can get interest as well as capital gains by investing in a debt mutual fund.

Top 10 Best Debt Funds

The table below shows the best-performing debt funds based on the last 5-year returns:

Who Should Invest in Best Debt Mutual Funds?

Debt funds are suitable for risk-averse or for those who are not ready to have equity exposure. Debt funds grow investors’ wealth with little to no risk. Additionally, these funds strive to provide regular income. Investors usually stay invested in debt funds for a short to medium-term horizon.

You need to choose an appropriate debt fund as per your investment horizon. Liquid funds may be suitable for a short-term investor who generally parks his or her surplus funds in a savings bank account. Liquid funds provide returns in the range of 7-9%. They also offer flexibility in terms of withdrawals at any time, just like a regular savings bank account.

If you need to ride the interest rate volatility, then dynamic bond funds may be an ideal option. These funds are suitable for a medium-term investment horizon to earn higher returns than a 5-year bank FD.

Taxation of Debt Fund

The dividends provided by mutual funds were previously made tax-free in the hands of investors until January 2020. The fund house was supposed to pay dividend distribution tax (DDT) at applicable rates before making the dividend payout to the investors. This was changed in the Union Budget 2020. The dividends are now taxed classically. Meaning, the dividends are added to your overall income and taxed as per the income tax slab you fall under.

The rate of taxation of capital gains depends on the holding period. If the debt fund units are sold within a holding period of three years, you make short-term capital gains. These gains are added to your overall income and taxed as per the income tax slab you fall under. You realise long-term capital gains on selling your debt fund units after a holding period of three years. These gains are taxed at a rate of 20% after indexation.

Risks Associated With Debt Funds

Debts funds possess the following risks:

Credit Risk

This is the possibility of the issuer of the debt security not standing by his obligation of returning the principal at the time of maturity, and regular interest payout.

Interest Rate Risk

This is the possibility of the movements in the interest rate offered by the underlying securities of the fund plan.

Liquidity Risk

This is the possibility of the mutual fund house not having sufficient levels of liquidity to cater to the redemption requests.

Things an Investor Should Consider While Investing in Debt Funds

The following are some of the factors that must be considered before investing in debt funds.

Fund Objectives

Debt funds aim at optimising returns by diversifying the portfolio by investing across a variety of securities. You can expect these funds to perform predictably. It is because of this reason that debt funds are suitable for conservative investors.

Fund Category

Debt funds are further classified under various categories such as liquid funds, monthly income plans (MIPs), fixed maturity plans (FMPs), dynamic bond funds, income funds, credit opportunities funds, GILT funds, short-term funds, and ultra short-term funds. These funds come with their own set of objectives to achieve and advantages. You have to assess your requirements and invest in a suitable debt fund.


Debt funds are subject to interest rate risk, credit risk, and liquidity risk. The fund value may fluctuate due to the movement in the overall interest rates. You have to assume these risks when you invest any debt fund plan.


Debt funds charge an expense ratio to manage your investment. No fund house can charge above the limit set by the Securities and Exchange Board of India (SEBI). The expense ratio varies across mutual fund plans.

Investment Horizon

An investment horizon of three months to one year is ideal for liquid funds. If you have a longer horizon of say two to three years, then you can explore short-term bond funds.

Financial Goals

Debt funds can be used to achieve a variety of goals such as earning additional income or for liquidity and earning much higher returns than a regular savings bank account. You have to ensure that your requirements are in with the objectives of the debt fund scheme you are choosing.

How to Evaluate Best Debt Mutual Funds?

The following are some of the factors that must be considered before investing in debt funds.

Fund Returns

It would help if you looked for consistency in returns over long-term, say three, five, or ten years. Choose funds that have outperformed the benchmark and peer funds consistently across different time frames. However, remember to analyse the fund performance, which matches your investment horizon to get results. Note that the past performance is not indicative of future returns.

Fund History

Choose fund houses that have a strong history of consistent performance in the investment domain. Ensure that they have a consistent track record of at least say five to ten years.

Expense Ratio

It shows how much of your investment goes towards managing the fund. A lower expense ratio translates into a higher take-home return. If there are two funds with a similar asset allocation and returns, then choose the fund which has a lower expense ratio and has the potential to give you superior performance.

Financial Ratios

You can use financial ratios such as standard deviation, Sharpe ratio, alpha, and beta, to analyse a fund. A fund having, higher standard deviation, and beta are riskier than a fund with lower beta and standard deviation. Look for funds with a higher Sharpe ratio, which means it gives higher returns on every additional unit of risk being taken.

Advantages of Debt Funds

The following are some of the most significant advantages of investing in debt funds:

Not influenced much by market movements

The performance of debt mutual funds are not influenced much by the market movements. Hence, these funds are less volatile as compared to equity funds. The portfolio of debt funds is mostly constituted with fixed-income securities.

Stable portfolio

Since the fund invests in fixed-income securities, the returns offered by debt mutual funds are much stabler. Therefore, risk-averse investors should consider investing in these funds.

Best for first-time investors

First-time investors may consider investing in debt funds to get started with their investment journey. This gives them the much-needed glimpse of what mutual funds are capable of.

Best option to park surplus funds

Since debt funds are highly liquid, you can consider investing your surplus money in these funds and earn much higher returns than a regular savings bank account.


Many times, investing in debt funds becomes complex. In case you don’t possess enough financial knowledge and are finding it too difficult to understand, then just reach out to us. We offer handpicked funds from experts.

Frequently Asked Questions

1. Which is the best type of debt fund?

You can make a wise choice by investing in a debt fund that suits your investment horizon, objective, and risk appetite.

2. Are debt mutual funds risk-free?

Although debt funds help you generate steady income, they have certain risks like interest rates and credit risk. Interest risk is associated with a fall in bond prices due to a rise in interest rates. On the other hand, credit risk is when a borrower fails to make the required payments.

3. What are the different types of debt funds?

The different types of debt funds include overnight funds, liquid funds, income funds, gilt funds, dynamic bond funds, ultra short-term funds, fixed maturity plans, etc.

4. Are debt funds tax-free?

The short-term capital gains in debt mutual funds are taxed depending on the applicable tax rate of the investor. On the other hand, long-term capital gains of debt funds are taxed at a 20% rate with indexation.

5. Is FD better than a debt mutual fund?

An FD is more secure as compared to debt funds. It is because market fluctuation does not impact the interest rate.

6. Is a debt mutual fund good for long-term or short-term purposes?

Debt funds are more appropriate for short-term purposes of one to three years. However, some investors may invest in equity funds to achieve their long-term financial goals. Assess your investment objective and make a suitable decision.

Best Debt Funds 2022 – Top 10 Performing Debt Mutual Funds (2024)


Best Debt Funds 2022 – Top 10 Performing Debt Mutual Funds? ›

The 1-year annualised returns given by HDFC Long Duration Debt Fund(G)-Direct Plan stand at 10.86%. This is also an open ended debt scheme investing in instruments such that the Macaulay Duration of the portfolio is greater than 7 years. The scheme was launched in January 2023.

Which debt fund gives the highest return? ›

Best Performing Debt Mutual Funds
Scheme NameExpense Ratio1Y Return
Nippon India Money Market Fund #1 of 15 in Money Market0.24%7.64% p.a.
Nippon India Corporate Bond Fund #1 of 15 in Corporate Bond0.34%7.25% p.a.
ICICI Prudential Medium Term Bond Fund #1 of 12 in Medium Duration0.74%7.25% p.a.
7 more rows

What is the highest performing mutual fund? ›

Best-performing U.S. equity mutual funds
TickerName5-year return (%)
STSEXBlackRock Exchange BlackRock16.27%
USBOXPear Tree Quality Ordinary16.13%
FGLGXFidelity Series Large Cap Stock16.08%
PRCOXT. Rowe Price U.S. Equity Research16%
3 more rows
Mar 29, 2024

What are the average returns from debt funds? ›

The 1-year annualised returns given by HDFC Long Duration Debt Fund(G)-Direct Plan stand at 10.86%. This is also an open ended debt scheme investing in instruments such that the Macaulay Duration of the portfolio is greater than 7 years. The scheme was launched in January 2023.

What is the safest investment with the highest return? ›

Here are the best low-risk investments in April 2024:
  • High-yield savings accounts.
  • Money market funds.
  • Short-term certificates of deposit.
  • Series I savings bonds.
  • Treasury bills, notes, bonds and TIPS.
  • Corporate bonds.
  • Dividend-paying stocks.
  • Preferred stocks.
Apr 1, 2024

Which debt fund has the highest degree of interest rate risk? ›

Gilt funds have a high degree of interest rate risk, depending on their maturity profile. The longer the maturity profiles of the instruments, the higher the interest rate risk.

Which debt fund is best for monthly income? ›

Reliance Hybrid Bond Fund

This is another hybrid debt-oriented fund, which is considered as one of the best monthly income plans for regular returns. In the last 5 years, Reliance Hybrid Bond Fund has generated a return of 9.84%. The investors can easily invest in this scheme with a minimum investment of Rs.

What are the top 5 performing mutual funds? ›

Top Performing Funds by Total Returns
  • 90.25% ProFunds Semiconductor UltraSector Fund SMPIX.
  • 63.17% Bitcoin Strategy ProFund BTCFX.
  • 61.05% T. Rowe Price Emerging Europe Fund TREMX.
  • 50.98% ProFunds UltraChina UGPIX.
  • 48.32% Fidelity® Select Semiconductors Port FSELX.

Which mutual fund has the highest return in one year? ›

Highest Return Mutual Funds in Last 1 Year
Fund Name6 Months Return1 Year Return
SBI Long Term Equity Fund (G)37.2%61.3%
Nippon India Growth Fund (G)29.4%60.7%
HDFC Mid Cap Opportunities Fund (G)28.2%57.8%
Motilal Oswal Large and Midcap Fund (G)33.3%57.4%
16 more rows

Which is the rank 1 mutual fund? ›

Top Mutual Fund Houses in India
S.No.Mutual Fund House
1.SBI Mutual Fund
2.ICICI Prudential Mutual Fund
3.HDFC Mutual Fund
4.Aditya Birla Sun Life Mutual Fund
6 more rows
Apr 23, 2024

How to get 10% return on investment? ›

Investments That Can Potentially Return 10% or More
  1. Stocks.
  2. Real Estate.
  3. Private Credit.
  4. Junk Bonds.
  5. Index Funds.
  6. Buying a Business.
  7. High-End Art or Other Collectables.
Sep 17, 2023

How long should you invest in debt funds? ›

Debt Fund Categories For Suitable Investment Horizons
Investment horizonDebt Fund Categories
Up to a yearUltra Short Duration Funds
One to three yearsMoney Market Funds, Low Duration Fund, Short Duration Funds
Over three yearsCorporate Bond Funds, Banking & PSU Funds
3 more rows

How much money do I need to invest to make $3,000 a month? ›

Imagine you wish to amass $3000 monthly from your investments, amounting to $36,000 annually. If you park your funds in a savings account offering a 2% annual interest rate, you'd need to inject roughly $1.8 million into the account.

Should a 70 year old be in the stock market? ›

Conventional wisdom holds that when you hit your 70s, you should adjust your investment portfolio so it leans heavily toward low-risk bonds and cash accounts and away from higher-risk stocks and mutual funds. That strategy still has merit, according to many financial advisors.

Where to get 6% return? ›

While the quest for a 6% return on your savings today may require some effort, CDs and high-yield savings accounts are two viable options to consider. These accounts offer competitive interest rates, safety through FDIC insurance and ease of management.

Which investment is best for senior citizens? ›

For senior citizens in India, a combination of SCSS, PMVVY, POMIS, FDs, and carefully selected mutual funds can form a robust investment strategy.
  • Pradhan Mantri Vaya Vandana Yojana (PMVVY)
  • Post Office Monthly Income Scheme (POMIS)
  • Fixed Deposits (FDs) for Senior Citizens.
  • Tax-Saving Tips:
Mar 5, 2024

Which debt fund is best for 1 year? ›

  • Axis Short Term Fund. #1 of 20. ...
  • ICICI Prudential Short Term Fund. #2 of 20. ...
  • SBI Short Term Debt Fund. #3 of 20. ...
  • Aditya Birla Sun Life Short Term Fund. #4 of 20. ...
  • HDFC Short Term Debt Fund. #5 of 20. ...
  • Mirae Asset Short Duration Fund. #6 of 20. ...
  • Baroda BNP Paribas Short Duration Fund. #7 of 20. ...
  • Canara Robeco Short Duration Fund. #8 of 20.

Is it the right time to invest in debt funds? ›

Debt Mutual Funds cover a wide range of debt securities and each security is affected by the changes in interest rates. As a result, the best time to invest in Debt Funds is usually when interest rates are decreasing or expected to drop.

Are debt funds a good investment? ›

Debt funds usually diversify across various securities to ensure stable returns. While there are no guarantees, the returns are usually in an expected range. Hence, low-risk investors find them ideal. These funds are also suitable for short-term investors and medium-term investors.

Do debt funds give monthly income? ›

Monthly Income Plans, abbreviated as MIPs, are hybrid mutual funds with a debt orientation, offering investors a fixed monthly return. While the equity investment proportion is relatively low, it provides an incremental advantage to the stability of the fund's debt component.


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