Best Debt Funds - Consider the best performing debt mutual funds to invest in 2025 with Scripbox.com. Find the list of best debt funds in India on the basis of Returns, Latest Nav, Ratings, Performance etc
BHARAT Bond FOF - April 2031 Direct (G)
is a Debt fund
that has delivered a 1 Year return of 10.4% and a 3 Years return of 9.1%
. The fund has an expense ratio of 0.1% and an AUM of ₹
4888 crores as of 2025-06-30.
It was Launched on 2020-07-23. The minimum lump sum investment is ₹5000.
2 . HDFC Floating Rate Debt Fund Direct (G)
HDFC Floating Rate Debt Fund Direct (G)
is a Debt fund
that has delivered a 1 Year return of 9.3% , a 3 Years return of 8.4% and a 5 Years return of 7.0%
. The fund has an expense ratio of 0.3% and an AUM of ₹
15221 crores as of 2025-06-30.
It was Launched on 2013-01-01. The minimum lump sum investment is ₹5000.
3 . Nippon India Arbitrage Fund Direct (G)
Nippon India Arbitrage Fund Direct (G)
is a Debt fund
that has delivered a 1 Year return of 7.5% , a 3 Years return of 7.5% and a 5 Years return of 6.2%
. The fund has an expense ratio of 0.4% and an AUM of ₹
14511 crores as of 2025-06-30.
The minimum lump sum investment is ₹5000.
4 . Kotak Nifty SDL Apr 2027 Top 12 Equal Weight Index Fund Direct (G)
Kotak Nifty SDL Apr 2027 Top 12 Equal Weight Index Fund Direct (G)
is a Debt fund
that has delivered a 1 Year return of 9.0% and a 3 Years return of 8.1%
. The fund has an expense ratio of 0.2% and an AUM of ₹
7693 crores as of 2025-06-30.
It was Launched on 2022-02-11. The minimum lump sum investment is ₹5000.
5 . BHARAT Bond ETF FOF - April 2032 Direct (G)
BHARAT Bond ETF FOF - April 2032 Direct (G)
is a Debt fund
that has delivered a 1 Year return of 10.3% and a 3 Years return of 9.2%
. The fund has an expense ratio of 0.1% and an AUM of ₹
4600 crores as of 2025-06-30.
It was Launched on 2021-12-15. The minimum lump sum investment is ₹5000.
6 . ICICI Prudential Liquid Fund Direct (G)
ICICI Prudential Liquid Fund Direct (G)
is a Debt fund
that has delivered a 1 Year return of 7.2% , a 3 Years return of 7.0% and a 5 Years return of 5.6%
. The fund has an expense ratio of 0.2% and an AUM of ₹
50000 crores as of 2025-06-30.
The minimum lump sum investment is ₹1000.
7 . HDFC Overnight Fund Direct (G)
HDFC Overnight Fund Direct (G)
is a Debt fund
that has delivered a 1 Year return of 6.3% , a 3 Years return of 6.4% and a 5 Years return of 5.1%
. The fund has an expense ratio of 0.1% and an AUM of ₹
10149 crores as of 2025-06-30.
It was Launched on 2013-01-01. The minimum lump sum investment is ₹5000.
8 . Aditya Birla Sun Life Savings Fund Direct (G)
Aditya Birla Sun Life Savings Fund Direct (G)
is a Debt fund
that has delivered a 1 Year return of 8.3% , a 3 Years return of 7.6% and a 5 Years return of 6.3%
. The fund has an expense ratio of 0.3% and an AUM of ₹
18981 crores as of 2025-06-30.
The minimum lump sum investment is ₹5000.
9 . Aditya Birla Sun Life Money Manager Fund Direct (G)
Aditya Birla Sun Life Money Manager Fund Direct (G)
is a Debt fund
that has delivered a 1 Year return of 8.3% , a 3 Years return of 7.6% and a 5 Years return of 6.2%
. The fund has an expense ratio of 0.2% and an AUM of ₹
26590 crores as of 2025-06-30.
The minimum lump sum investment is ₹5000.
10 . Aditya Birla Sun Life Nifty SDL Plus PSU Bond Sep 2026 60:40 Index Fund Direct (G)
A debt mutual fund is a mutual fund scheme that invests in fixed income generating instruments with lesser risk and lesser volatility like Certificate of deposit, Corporate Bonds, treasury bills, commercial paper, government securities. Debt mutual funds are also popularly known as Bond Funds or Fixed Income Bonds
The main objective of this fund is to provide regular and fixed interest during the investment period. Also, aim for capital appreciation for an investor.
The selection of assets for a debt mutual fund is based on the credit rating. A higher credit rating gives a higher assurance that the interest will be paid regularly and the principal amount invested will be repaid upon the maturity of the investment.
Overview of the Top 10 Debt Funds (Direct Plan) in India
Fund Name
3 Year Returns
5 Year Returns
BHARAT Bond FOF – April 2031 – Direct Plan Growth
6.4%
NA
HDFC Floating Rate Debt Fund – Direct Plan Growth
6.9%
7%
Nippon India Arbitrage Fund – Direct Plan Growth
6.9%
6%
HDFC Gilt Fund – Direct Plan Growth
5.9%
6.3%
Kotak Banking and PSU Debt Fund – Direct Plan Growth
6.4%
7%
HDFC Overnight Fund – Direct Plan Growth
5.8%
4.8%
ICICI Prudential Liquid Fund – Direct Plan Growth
6.3%
5.4%
Aditya Birla Sun Life Money Manager Fund – Direct Plan Growth
6.7%
6.2%
Aditya Birla Sun Life Savings Fund – Direct Plan Growth
6.6%
6.3%
Aditya Birla Sun Life Nifty SDL Plus PSU Bond Sep 2026 60:40 Index Fund – Direct Plan Growth
5.6%
NA
Overview of the Top 10 Debt Funds (Regular Plan) in India
Fund Name
3 Year Returns
5 Year Returns
BHARAT Bond ETF FOF – April 2032 – Regular Growth Plan
NA
NA
HDFC Overnight Fund – Regular Growth Plan
5.7%
4.7%
Kotak Nifty SDL Apr 2027 Top 12 Equal Weight Index Fund – Regular Growth Plan
NA
NA
HDFC Floating Rate Debt Fund – Regular Growth Plan
6.6%
6.7%
BHARAT Bond FOF – April 2031 – Regular Growth Plan
6.5%
NA
Aditya Birla Sun Life Savings Fund – Regular Growth Plan
6.4%
6.1%
Bandhan CRISIL IBX Gilt April 2028 Index Fund – Regular Growth Plan
5.5%
NA
Aditya Birla Sun Life Nifty SDL Plus PSU Bond Sep 2026 60:40 Index Fund – Regular Growth Plan
5.5%
NA
BHARAT Bond FOF – April 2030 – Regular Growth Plan
6.4%
NA
Nippon India Arbitrage Fund – Regular Growth Plan
6.0%
5.2%
What are the Advantages of Investing in Debt Funds?
Below are the advantages of investing in debt mutual funds:
Debt mutual funds carry less risk than equity funds, this scheme is ideal for an investor seeking stability
These funds are highly liquid and an investor can anytime convert his investment into cash quicker than any other comparable investment option.
The amount invested in debt mutual funds can easily be transferred to an equity mutual funds or any other scheme as per an investor’s choice. Such options are not available in other investment options. Example- FD can be closed but cannot be transferred
Higher potential returns as compared to FD rates and saving account interest rates
When a debt mutual fund is combined equity mutual funds, a portfolio is more stable due to diversification
Who Should Invest in Debt Mutual Funds?
Debt mutual funds are suitable for investors who wish to earn a fixed and regular income with less or no risk involved for a short duration. Usually, investors stay invested from a short to medium duration. Accordingly, investors choose the funds which match their investment horizon.
A Liquid fund is suitable for investors who look for a short or medium duration investment and generally park their surplus money either in fixed deposits or saving account. Liquid mutual funds can be withdrawn anytime just like a savings bank account and provide returns in the range of 7% to 9%.
How are Debt Mutual Funds Taxed?
For investments done before March 31st, 2023, the gains arising from debt mutual funds are taxed under Capital Gains depending on the holding period of the investment.
Short Term Capital Gain: STCG arises if the investment is held for less than 3 years from the date of investment in the fund STCG is levied on the capital gain arising from investment in a debt fund held for a period of less than 3 years. The capital gain will be added to the total income of an investor and the rate of tax will be as per the income tax slab rate. The income tax slab rate depends on the net taxable income and age of the taxpayer
Long Term Capital Gain: LTCG arises if the investment is held for more than 3 years from the date of investment in the fund LTCG is levied on the capital gain arising from investment in a debt fund held for a period of more than 3 years. LTCG is taxed at a rate of 20% after indexation. Indexation is a method of calculating the effect of inflation on the underlying asset. This effect is calculated from the date of purchase to the date of sale of the investments. Once indexation is applied, the purchase price is inflated. This provides an equilibrium in terms of inflation between the purchase price and sale price. Hence the quantum of capital gain is decreased due to indexation
As per the Finance Bill 2023, for investments done after April 1st 2023, the capital gains are taxable as per the investor’s income tax slab rate. The benefit of indexation for long-term capital gains is no longer available for debt mutual funds.
Taxation of Debt Mutual Fund
Taxation for investments made before March 31st 2023:
Period of holding
Taxation
Less than 1 year
STCG- Taxed at Slab Rate
1 year to 3 year
STCG- Taxed at Slab Rate
More than 3 years
LTCG- 20% after indexation
For investments made after April 1st 2023, the capital gains are added to the investor’s taxable income and are taxed at the applicable slab rate. Thus, no LTCG tax benefit for debt mutual funds.
Different Types of Debt Fund
There are many types of debt mutual funds depending on the interest rate and maturity. An investor who wishes to invest in debt mutual funds must also consider which type of fund is most suitable for his investment terms.
The different types of debt mutual funds are listed below:
Risk: Debt mutual funds also carry risk and an investor must be aware and considerate of these risks while choosing debt mutual funds. The types of risk are listed below
Interest rate risk- Due to market fluctuation in interest rate, the fund value may fluctuate as well
Credit Risk- The risk of default in payment of the interest amount and principal amount invested. Here, the higher the credit score of a debt mutual fund the more reliable it is.
Cost: The fund houses charge a fee in exchange for maintenance of the fund by a fund manager known as the expense ratio. An investor must choose the fund with a lower expense ratio when compared to peer funds in the category
Investment horizon and objective: A period of 3 months to 12 months is ideal for investing in liquid funds, to invest for a longer period an investor must consider investing in short term bond funds. An investor must also set the ultimate objective of his investment and accordingly select amongst the different types of funds.
How to Choose the Best Debt Mutual Funds?
The average maturity of debt funds
The maturity of any debt fund is a very important criterion for any investor before selecting the most suitable debt fund to match with investment horizon and investment goals. Often, this is missed by investors and results in unnecessary risk.
The duration or maturity of a debt fund is important because it helps in optimizing returns at a given risk and maturity. Example- a liquid fund has an average maturity ranging from a few days to a month and it is a better option for an investor looking for an investment option for a few days. On the other hand, for investors looking for an investment option for say a year, short-term debt funds will be an ideal option.
Current yield and portfolio yield
The yield is the measure of interest income generated by the bonds. A higher coupon or yield of the invested debt instruments or bonds would mean a higher coupon of the entire portfolio.
The yield to maturity (ytm) of a fund means the present yield of the fund. An investor must always be keen to know-how is the extra yield being generated on the existing funds. Is this extra yield being generated through funds with lower quality? If this is the case it would mean the fund may default later.
Interest rate
In debt funds, one of the most important factors is the interest rate prevailing in the economy. An investor must understand the market environment w.r.t. Interest rate and its fluctuations.
The interest rate is directly related to the price or NAV of the bonds. With an increase in interest rate, the price of the bonds falls, and vice versa. While the interest rate increases, new bonds are introduced in the market which are attractive for new investors and values higher than current bonds. Here a repricing of current bonds takes place.
A debt fund portfolio which involves such older bonds will be impacted. With a rise in the interest rate, the value of these older bonds will decrease, having a negative impact on the overall portfolio.
Example
During the period of rising interest rates in the market, long term debt funds are at a higher risk. In such a scenario, investing in short term debt funds and liquid funds are a safer and better option
An investor who has a better understanding will always benefit from market conditions.
Expense Ratio
An expense ratio is a fee that the fund manager charges for the management of the portfolio. An expense ratio differs from fund to fund.
BPS is a unit to measure interest rates wherein one bps is equal to 1/100th of 1%.
Example
Liquid funds have an expense ratio of up to 50 bps while other debt funds charge up to 150 bps.
The expense ratios lower the net returns earned by the portfolio. Hence an investor must consider the expense ratios before selecting funds.
The credit rating of the portfolio
A credit rating is provided to all the debt instruments and bonds. This rating reflects the ability of the instrument or bond to repay the amount invested. The higher the rating, the lower is the level of default risk.
An investor who wants a safe and secure option for investment must consider AAA or AA+ rated instruments and bonds.
How to Invest in Debt Fund Through Scripbox
You can invest in Scripbox’s recommended best debt mutual funds in India by following the below-mentioned steps:
Login to Scripbox
Click on ‘Invest’
Begin your investment journey by choosing ‘A plan to invest in’ or ‘I want to choose my own funds’
Select the mode of investment, i.e., monthly SIP, one-time or STP
Enter the amount of investment
Based on the amount of investment, the recommended funds will be provided. You can change the funds and the distribution of the amount.
Select the payment mode and complete the transaction to set up your investment.
Frequently Asked Questions
Is it safe to invest in debt funds?
Yes, it is a relatively safe option to invest in debt mutual funds. Debt funds invest in government securities, corporate bonds, fixed income generating instruments Historically, these funds have provided a regular income with moderate to low risk on the invested amount.
Why are debt funds better than fixed deposits?
There are two reasons why debt mutual funds are considered a better option to invest than FD or saving account. Firstly, debt mutual funds do not have a lock-in period like FD. Secondly, historically debt mutual funds have delivered higher returns than FD rates.
What is the average maturity of debt funds?
Maturity is the time period for which the amount is invested in the scheme and on the expiry of this maturity period, the principal amount invested is redeemed. On average, the maturity period of debt funds is 5 years. However, an investor can choose to invest in schemes with any maturity period
Do debt funds have a lock-in period?
Debt mutual funds do not have a lock-in period, an investor can choose to withdraw anytime.
What is TREPs in a mutual fund?
TREPs are Tri-Party Repo agreements. TREPs allow the borrowing and lending of funds against Government Securities as collateral in a Triparty Repo arrangement. TREP is a repo contract in which a third party (Tri-party) acts as an intermediary between the borrower and lender. The role of the Tri-Party Agent is collateral selection, ensuring payments and settlements, custody and management of the contract. Clearing Corporation of India Ltd (CCIL) is the Central Counterparty to all trades from Tri-Party Repo Dealing System (TREPS). The following entities participate in TREPS: Mutual Funds, Banks, Financial Institutions, Pension Funds, NBFCs, Insurance Companies, Corporates, Primary Dealers, etc.
How does Scripbox rate funds?
Proprietary system to rate mutual funds
We use a proprietary system to rate mutual funds and based on the outcome of the rating, we classify funds into 4 categories namely "Recommended", "Top Ranked", "Neutral" and "Not Recommended".
Scripbox algorithm recommends 2-4 funds for investment for an investment asset class such as large cap, diversified, liquid etc. When you invest for an objective, the algorithm suggests the appropriate asset class and funds.
Top Ranked
These funds are the top performers within a category of mutual funds considering a combination of criteria. The best amongst these funds are also labelled as Scripbox Recommended.
Neutral
Scripbox recommends other funds, which are more suitable for your investment objectives, within this asset and sub asset class.
Not Recommended
Scripbox algorithm classifies funds as "not recommended" when they perform poorly on a combination of criteria. These funds are usually the poorest performers within a category.
Things we consider to provide ratings for a mutual fund.
Outperformance Consistency
We look at the consistency of the outperformance that the fund has displayed. A fund with high consistency is preferred
Rolling Returns (1 Year Holding Period)
We consider average 1 year return that the fund has delivered over an extended period of time
Rolling Returns (3 Year Holding Period)
We consider average 3 year return that the fund has delivered over an extended period of time
Volatility of Outperformance
We consider how volatile the out-performance over the benchmark has been. A lower volatility is preferred
Downside Protection Measure
We look at how resilient the fund is to market down trends. A fund that has shown a higher resilience is preferred
Upside Participation Measure
We consider how well the fund has been able to participate in upmoves in the market. A fund that participates well is preferred
Fund Size
We look at the size of the fund with respect to other funds in the category. Larger funds are preferred.
How to invest in best mutual funds?
Investing through Scripbox is made easy and paperless. All you need to do is follow the below steps and start investing.
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Invest online & transfer
Invest via netbanking, UPI or through an SIP (eNACH mandate).
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Track, invest more and withdraw your investments through the Scripbox dashboard
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