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  • Debt Mutual Funds in India

Debt Mutual Funds in India

Debt funds are mutual funds that invest predominantly in fixed income earning securities. These funds are more suitable for a short term investment objective with a low level of risk.

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List of Debt Mutual Funds in 2023

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Fund name
Till Date CAGR
Aditya Birla Sun Life Nifty SDL Plus PSU Bond Sep 26 60 40 fund (G)

9347.531 Cr




ICICI Prudential Liquid Fund (G)

47245.615 Cr




HDFC Floating Rate Debt Plan (G)

14785.955 Cr




Nippon India Arbitrage Fund (G)

9234.357 Cr




BHARAT Bond FOF April 2031 fund (G)

3579.252 Cr




Aditya Birla Sun Life Savings Fund (G)

14457.083 Cr




BHARAT Bond FOF April 2030 fund (G)

5241.526 Cr




Kotak Nifty SDL Apr 2027 Top 12 Equal Weight Index Fund (G)

6124.781 Cr




BHARAT Bond ETF FOF April 2032 (G)

2835.546 Cr




HDFC Overnight fund (G)

20146.188 Cr




Aditya Birla Sun Life Money Manager Fund (G)

13095.495 Cr




HSBC Corporate Bond Fund (G)

6772.327 Cr




UTI Liquid Cash Plan (G)

31463.346 Cr




Axis Dynamic Bond Fund (G)

1733.403 Cr




ICICI Prudential Ultra Short Term Fund (G)

12447.391 Cr




Nippon India Banking & PSU Debt Fund (G)

4008.584 Cr




ICICI Prudential Short Term Fund (G)

14561.489 Cr




SBI Overnight Fund (G)

19888.305 Cr




Quant Liquid Plan (G)

1561.919 Cr




HDFC Low Duration (G)

14779.541 Cr




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Gilt FundsArbitrage FundsCorporate Bond fundsOvernight FundsLow Risk Mutual FundsUltra Short Term FundsHigh Risk Mutual FundsDynamic Bond FundsEquity Savings FundDynamic Asset Allocation FundSectoral Mutual FundsChildrens Mutual FundMulti Asset FundMoney Market Mutual FundsBanking and PSU debt FundAggressive Hybrid Funds

Debt funds are mutual fund schemes that invest a major portion of the pooled corpus of money in debt or fixed-income instruments. Examples of such instruments are corporate bonds, debentures, government securities, and money market instruments like treasury bills, commercial papers, and certificates of deposits.
Investing in a debt instrument is similar to giving a loan to the debt issuer company. When a company or government entity wants money, they ‘borrow’ from investors by issuing debt instruments. In return, they promise a steady and regular interest to the investor. This is how a debt fund works. Hence, when you invest in debt funds, you indirectly loan your money to the debt issuer company.
The main reason for investing in debt funds is to earn a regular income and grow wealth in a stable manner for short term needs. It aims to minimize risk by picking the least risky types of investment instruments. Debt funds are a safer option that aim to generate income better than bank fixed deposits. They do so by investing in different securities, based on their credit ratings. The credit rating shows the creditworthiness, i.e. whether the issuer will honor his commitments of disbursing returns and principal as promised.
A higher credit rating means that the issuer is more likely to pay interest regularly and repay back the principal amount upon maturity. These are better options than the traditional investment options like bank deposits and savings bank account.

Features of Debt Funds

  • Debt Funds have the Lowest Risk:
    Debt funds are not directly impacted by share market fluctuations. The interest rate regime in the economy and its movements impact debt funds. However, the interest rate movements are not as drastic as share market movements. Moreover, debt funds invest in fixed-income securities that have a known interest rate and maturity value. Thus, debt funds have lower risk when compared to equity funds.
  • Debt Funds have a Low Capital Appreciation:
    The investment aims to provide safe and steady returns. They invest in fixed-income securities that pay a steady interest amount. The debt issuer company only repays back the loan amount. Moreover, it grows through reinvesting the interest income and maturity amount.
  • Debt Funds have a Duration:
    In the debt mutual fund, the underlying bonds and debt instruments have a fixed maturity period. All fixed-income securities have a duration. In layman terms, the ‘duration’ is the time period an investor has to wait to get back all his invested money in the bond by way of periodic interest as well as the principal repayments. Thus, all debt mutual funds have a specific duration that ranges for 1 day in case of overnight funds to 10 years in case of “Gilt Funds with 10-year fixed duration”.
  • The Underlying Debt Securities are Rated for Credit Quality:
    Unlike equity mutual funds, most of the underlying fixed-income securities in debt funds are rated for credit quality. For example, corporate bonds, debentures, and commercial papers are rated by the rating agencies. Whereas, government securities and T-bills are backed by the Government of India. Low-risk debt funds invest in the highest AAA rated fixed-income securities. Corporate bond funds and Credit risk funds can invest in lower-rated fixed-income securities.

Benefits of Investing in Debt Funds

  • Stable Income: Debt Funds generate returns majorly through interest income and maturity value received from the underlying fixed-income securities. Both, interest rate and maturity value are fixed and hence debt funds provide a stable and regular stream of cash flow without the risk of market fluctuations.
  • Safer Investment Option: Debt funds are a safe investment option for conservative investors whose priority is to have a fixed interest income, not capital appreciation. Investors having lower-risk appetite benefit from the credit quality and lower volatility offered by it.
  • Tax Efficiency: Debt funds are more tax-efficient than traditional investment options like fixed deposits (FDs). In FDs, the interest income is taxed each year. Whereas, the debt funds are taxed in the year your redeem. You pay Short Term Capital Gains (STCG) tax if you held debt fund investments for less than three years. Long-Term Capital Gains (LTCG) along with indexation benefits are applicable for investments beyond three years.
  • Liquidity: Debt mutual funds allow you to redeem your units and have your money back on any business day. Which is not possible in case of FD investment. Fixed deposits have a specified maturity date. If you liquidate FD prematurely, the bank will charge you a 1% penalty.
  • Offers Portfolio Stability: Your investment portfolio can earn higher returns from equity funds, but it comes with the volatility challenge. Adding debt funds diversifies your portfolio and bring down the overall risk.

Who Should Invest in Debt Mutual Funds in India?

1. Risk-Averse Investors

Debt fund returns are predictable, in the sense you know the interest income and the maturity value beforehand. Thus, returns from them are in a range. This makes them safer avenues for conservative investors.

The risk of investing in debt mutual funds is lower than equity funds because they do not have market fluctuations.

2. Investors with Short to Medium Term Investment Horizon

The underlying debt securities have a maximum maturity of 10 years. Debt funds are better suited to the financial goals that need an assured amount of money like repayment of a loan, buying a car or money for the vacation. These goals are short to medium-term in nature.

Hence, debt funds are best for investors looking to fulfill short to medium-term financial needs.

3. Investors Looking for Portfolio Diversification

Having only equity funds in your investment portfolio can be risky. Instead of putting all the amount in equity funds, you can diversify/ lower the risk by investing in debt funds.

The debt component helps you to cushion any downside risk of returns and works effectively in reducing the overall portfolio risk.
How to Invest in Debt Funds

Different Ways to Invest in Debt Funds

1. Through an Online Mutual Fund Investment Platform

An online mutual fund investment platform is a paperless, quick and hassle-free way of investing in mutual funds. You just need to create an account for handling all your mutual fund investments.

For example, Scripbox is an online mutual fund investment, tracking, management, and redemption platform.

The steps required for investing in debt funds using an online investment platform are;

  • Create an account with the investment platform
  • Create/ Pick up the scheme or plan
  • Choose the payment type (SIP or lump-sum) and the amount
  • Fill in the few personal details like PAN and bank details
  • Transfer money online to complete the investment

2. Through the Asset Management Company (AMC)

Mutual funds investment can be done directly online and offline through a mutual fund house or the AMC.

A. For an online investment

You can visit the AMC website, the process involves;

  • Opening a new account
  • Provide personal details for the investment
  • Provide bank details
  • Upload image of the canceled cheque
  • Verify KYC through Aadhar and transfer money

B. For an offline investment

For offline investment, you need to visit the local office and submit the investment application form along with the required KYC documents.

3. Using Demat Account

Existing Demat account can be used for investing and transacting in the mutual fund, provided your broker provides a mutual fund investment facility. For that, your broker needs to be a mutual fund distributor.

For investing, log-in to your Demat account and look for the option to invest in the mutual fund. In the next step, you need to choose the mutual fund schemes in which you want to invest.

4. Agent

This method is not recommended because it is costly and time-consuming.

The process involves;

  • Calling your agent (a mutual fund distributor)
  • Hand over the filled-in application form along with a copy of all the KYC documents, and canceled cheque.

How to Invest in Debt Funds Online?

The stepwise method for investing in debt funds through Scripbox is as under;

Step 1. Visit Scripbox and Choose a Life Goal

  • Scripbox is an online mutual fund investment website. Click on “Let’s Get Started” to choose a life goal.
  • Select “Achieve life goals” and in the next step click option “Dream Planner” as shown below;
  • On the next page, you will have a list of lifestyle goals. For investing in debt funds, you can pick any of the lifestyle goals.
  • The example has selected the goal “Loan Closure”.

Step 2. Create an Investment Plan

  • For creating a plan, you need to provide information like the amount required and the time to reach the goal.
  • The example plan has a goal (loan repayment) amount of Rs. 3 Lakhs and the 3 years as the time frame. Click on “Continue” to proceed ahead.
  • If you have made any savings for the goal then you can add the amount in the option shown above or else click on “Show Plan For”. In the next step you will get the short plan details as under;
  • On this page, you will see the monthly SIP amount required for meeting the goal. Scripbox gives you the option to increase SIP every year. The example has taken a 5% increase in SIP. You have the flexibility to vary the percentage.
  • Click on the “Start with” box to proceed ahead.
  • The summary of the lifestyle goal of “Loan closure” is shown on this page. Check all the details before you click on “Continue”.

Step 3. Signup and Create an Account

  • Before you proceed with debt fund investment, Scripbox asks you to have an online account. The account helps you to invest, track, and manage all your mutual fund investments from a single account.
  • You can create an account using your email ID and password.

Step 4. Payment Method Selection

  • When you log in, you will get the webpage as under;
  • Here you need to select the payment option between SIP and Lump-sum. SIP is a better option, as you invest a small amount regularly.
  • If you have a surplus amount then you can invest in a lump-sum. Choose the option that suits your cash flows.
  • The example has taken the SIP payment method.
  • Next, you will get the detailed dream plan for “Loan closure” showing investment in best debt funds. If you want, you have the option to change the fund or amount allocation through the option below.
  • Or you can click “Continue to invest”.

Step 5. Bank Account Details & Money Transfer

In the final step, you need to provide the bank details for investing in debt funds. The bank account will be used for investing and crediting redemption proceeds directly with the AMC.

Recommended: Check out best debt mutual funds to invest in India


Debt funds are a safer investment mechanism to plan for short term goals. They have a stable cash flow and offer the benefit of liquidity and tax efficiency over traditional investment options like fixed deposits. Debt funds are better suited for investors having short to medium-term financial needs.

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