Top Debt Mutual Funds in India

Debt Funds are a great place to park any sudden influx of incomes such as bonuses, gifts, hikes due to promotions etc, as they can provide better returns than alternatives like Fixed Deposits, Savings Accounts, etc. Debt Funds are exposed to debt risks like Credit Risk and Interest Rate Risks. Debt funds mitigate debt risk and maximize returns through active management. A good debt fund shows both qualitative and quantitative efficiencies when it comes to capital allocation. Here is a list of Debt Funds that are safe and can provide investors great returns.

Top Funds
Banking & PSU
Gilt Short Term
Income
Others
FUND 3Y RET. 5Y RET. RATING
Reliance Gilt Securities Fund - Direct Plan Defined Maturity Date Option11.04%12.13%5
Franklin India Corporate Debt - Direct9.41%9.68%5
ICICI Prudential Debt Management Fund Direct Plan8.21%9.66%5
UTI Treasury Advantage Fund - Institutional Plan - Direct3.45%5.69%4
Franklin India Dynamic Accrual Fund - Direct9.73%10.41%5
UTI Gilt Fund - Direct10.19%10.99%5
Franklin India Low Duration Fund - Direct8.86%9.33%5

Debt Funds : Basics, Types, Benefits and More

What are Debt Funds?

Debt Funds primarily invest the corpus in debt instruments like Government Securities, Treasury Bills, Corporate Bonds and other money market instruments. The investment in debt instruments allows the investor to earn an interest income which is a predictable, periodic income. The maturity period of debt funds is predetermined. Debt funds invest in securities based on their credit ratings, as the credit rating of an entity demonstrates whether it will make regular payments of interest. The maturity period of a debt fund is determined by the prevailing interest rates in the economy, if interest rates are low a fund manager will invest in long-term debt to see reasonable returns, and if interest rates are high a fund manager will invest in short-term debt to provide the investor with returns as soon as possible.

Type of Debt Funds:

Gilt Funds

Gilt Funds primarily invest in government securities as they are high-rated securities. As the primary underlying asset is government securities, these funds are considered safe investments.

Dynamic Bond Funds

Dynamic Bond Funds are funds with a dynamic portfolio. The portfolio composition in these funds are updated according to the latest prevailing interest rates in the economy. Due to the portfolio being dynamic, Dynamic Bond Funds do not have a fixed maturity period as fund managers adjust the portfolio based on interest rates rather than the maturity period. These funds are suited to investors with a long investment horizon as the maturity period on them is not fixed.

Income Funds

Income Funds are similar to Dynamic Funds in a sense that the portfolio composition in these funds is dynamic, but the underlying investment is in long-term debt. Income funds are considered more stable than dynamic funds as the maturity period on the underlying debt is usually 5 years and above.

Short-term and Ultra-short term debt funds

Short-Term and Ultra-short term debt funds invest in short term debt instruments with a maturity period between 1 to 5 years. These funds are suitable for investors who want consistent income interest as they are not affected by interest rate fluctuations.

Fixed Maturity Plans

Fixed Maturity Plans (FMP) come with a fixed lock-in period and invest the corpus in fixed income securities like corporate bonds and government securities. Fixed Maturity Plans come with a pre-determined investment horizon which can either short-term or long-term and can only be invested in during the initial offer period. An FMP works like a Fixed Deposit but offers better returns which are tax efficient, but the rate of returns is not fixed.

Credit Opportunities Fund

Credit Opportunities Funds (COFs) are relatively riskier debt funds as they pick lower-rated debt instruments with higher interest rates to invest in. These funds can provide the investor superior returns, but carry the risk of investment in low-rated debt instruments which can default in payment.

Top Debt Funds

All Debt Funds
Reliance Gilt Securities Fund - Direct Plan Defined Maturity Date Option
3Yr. ret11.04
5Yr. ret12.13
Franklin India Corporate Debt - Direct
3Yr. ret9.41
5Yr. ret9.68
ICICI Prudential Debt Management Fund Direct Plan
3Yr. ret8.21
5Yr. ret9.66
UTI Treasury Advantage Fund - Institutional Plan - Direct
3Yr. ret3.45
5Yr. ret5.69
Franklin India Dynamic Accrual Fund - Direct
3Yr. ret9.73
5Yr. ret10.41
UTI Gilt Fund - Direct
3Yr. ret10.19
5Yr. ret10.99
Franklin India Low Duration Fund - Direct
3Yr. ret8.86
5Yr. ret9.33