Overview

Debt mutual funds are the type of mutual funds that invests in debt securities like government securities, treasury bills, money market instruments, corporate bonds, and other debt securities of different times periods as per the convenience of the investor.

In this, the amount is invested in a scheme that comes with a maturity date and a fixed rate of interest.

Many agencies provide ratings to these funds based on the performance of the fund. These agencies are CRISIL, CARE, FITCH, Brickwork, and ICRA.

These ratings seem simple but are not simple. As the money is invested in securities which are tradable like stocks.

Advantages of debt funds

Returns

Almost all of the debt funds promise to pay the returns of 7-8% to the investors on a regular basis. On the other hand, if you invest your money in bank recurring deposits, you’d be getting a return of around 5-7%. Taking into account the risk factor of both the options available, shouldn’t it be advisable to invest in a scheme that provides a much better return?

Rupee cost averaging

Rupee cost averaging is all about regular investments. When regular investments are made irrespective of the market conditions, the investor gets more units when the market is not performing and he/she gets fewer units when the market is booming. So, the total cost of the investment averages out.

Liquidity

Compared to other options available in the market, debt funds provide more liquidity. Consider, bank fixed deposits which are recurring in nature, but if the money is withdrawn before the time mentioned, then there would be a penalty for it. That’s not the case of debt funds. If the money is invested in debt funds, using the SIP option, then the amount can be withdrawn anytime without any penalty incurred.

Lower taxes

In the case of debt funds, the tax is charged with the same rate as in the case of fixed deposits for up to 3 years. But after this period, the tax is charged significantly lower than recurring deposits. It is about 10% without indexation plus 3% cess. Learn how to plan your taxes: types & objectives in mutual funds.

And in the case of the fixed deposits, the tax is charged the same way as before, which depends on your income bracket. Must read on Tax benefits of investing in mutual funds

Best debt funds schemes

Fund name1 yr3 yr5 yrExpense ratioCategoryRisk
Axis liquid fund direct growth7.61%7.23%7.77%0.11%Debt (Liquid)Low
Indiabulls liquid funds direct growth7.51%7.26%7.84%0.1%Debt (Liquid)Low
Franklin India Low duration fund direct growth9.23%9.15%9.46%0.4%Debt (low duration)Moderate
ICICI Prudential All seasons Bond fund direct growth8.53%9.21%10.67%0.6%Debt (dynamic)Moderate
Kotak MF money market scheme direct growth8.28%7.43%7.91%0.16%Debt (money market)Low
Franklin India Ultra-short bond fund- super international plan-direct growth9.64%8.96%9.29%0.35%Debt (ultra-short duration)Moderate
HDFCMF short term debt fund- direct growth8.31%7.65%8.36%0.25%Debt (short duration)Moderately low
Aditya Birla sun life corporate bond fund- direct growth8.91%7.93%8.68%0.27%Debt (corporate bonds)Moderately low

Learn What are the best Aditya birla mutual fund schemes

Axis liquid fund (best debt funds)

It is one of the top-performing debt fund schemes in the market as of now. Consistently over the last years, it has promised a return of 8% (approximately), which is higher than others.

AUM (Fund size)Rs. 28,010 crore
Minimum SIPNot applicable
Minimum LumpsumRs. 500
Age of the fund10 years
Expense ratio0.11%
TypeOpen-ended

Indiabulls liquid fund (best debt funds)

Investing in this fund is also better than most of the schemes working in the market. The return is 8.25% over the last 5 years and 6.71% over the last year.

AUM (Fund size)Rs. 5,040 crore
Minimum SIPRs. 500
Minimum LumpsumRs. 500
Age of the fund8 years
Expense ratio0.10%
TypeOpen-ended

Franklin India Low duration funds (best debt funds)

The money invested in this scheme has given a very high return of 9.49% over the last 5 years and 8.20% over the last year.

AUM (fund size )Rs. 6,875 crore
Minimum SIPRs. 500
Minimum LumpsumRs. 10,000
Age of the fund6 years
Expense ratio0.40%
TypeOpen-ended

ICICI Prudential long term plan (best debt funds)

It is one of the best debt funds schemes as investing in this scheme has promised a return of 4.43% in the last year and a whopping 11.24% in the last 5 years.

AUM (fund size)Rs. 28,010 crore
Minimum SIPNot applicable
Minimum LumpsumRs. 500
Age of the fund26 years
Expense ratio0.60%
TypeOpen-ended

Kotak Money market scheme

AUM (Funds size )Rs. 6,736 crore
Minimum SIPNot applicable
Minimum LumpsumRs. 5,000
Age of the fund21 years
Expense ratio0.16%
TypeOpen-ended

Franklin India Ultra-short bond fund

AUM (fund size )Rs. 16,712 crore
Minimum SIPRs. 1,000
Minimum LumpsumRs. 5,000
Age of the fund21 years
Expense ratio0.16%
TypeOpen-ended

HDFC short term fund

AUM (Fund size)Rs. 7,316 crore
Minimum SIPRs. 500
Minimum LumpsumRs. 5,000
Age of the fund19 years
Expense ratio0.25%
TypeOpen-ended

Aditya Birla Sun Life Corporate Bond fund

AUM (Fund size)Rs. 15,134 crore
Minimum SIPRs. 100
Minimum LumpsumRs. 100
Age of the fund25 years
Expense ratio0.27%
TypeOpen-ended

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