Debt Mutual Funds
Last Updated on 31 Mar 2026
3 Year Average Returns
6.77%
Funds on Anand Rathi
1483
Debt Funds to Invest in 2026
| Fund Name | |||
|---|---|---|---|
| Bank of India Credit Risk Fund - Regular | 16.95% | 9.61% | 27.42% |
| Sundaram Money Market Fund - Regular (IDCW-M) (RI) | 6.14% | 21.63% | 14.70% |
| DSP Credit Risk Fund (G) | 10.06% | 16.01% | 12.31% |
| DSP Credit Risk Fund (IDCW-D) | 9.96% | 15.97% | 12.28% |
| DSP Credit Risk Fund (IDCW-Q) | 10.05% | 15.56% | 12.06% |
| Aditya Birla SL Medium Term Plan (IDCW) | 8.53% | 9.84% | 12.01% |
| Aditya Birla SL Medium Term Plan (G) | 8.53% | 9.83% | 12.00% |
| Aditya Birla SL Medium Term Plan (IDCW-Q) | 8.53% | 9.83% | 12.00% |
| Aditya Birla SL Medium Term Plan (IDCW-H) | 8.53% | 9.83% | 12.00% |
| DSP Credit Risk Fund (IDCW) | 10.06% | 14.16% | 11.24% |
| Bank of India Short Term Income (IDCW-M) | 5.02% | 7.08% | 10.22% |
| Bank of India Short Term Income (IDCW-Q) | 5.02% | 7.08% | 10.22% |
| Bank of India Short Term Income (G) | 5.02% | 7.08% | 10.22% |
| UTI-Credit Risk Fund (IDCW-A) | 5.97% | 7.94% | 9.96% |
| Aditya Birla SL Credit Risk Fund (G) | 12.11% | 12.04% | 9.91% |
Calculate Your Mutual Fund Returns
Returns Estimator
Estimation is based on the past performance
Expected Rate of Return
The value of your investment after 5 Years will be
₹4,12,432
Invested Amount
₹3,00,000
Est. Returns
₹1,12,432
What Are Debt Mutual Funds?
A Debt fund is a mutual fund category investing primarily in debt securities like corporate bonds, government securities (G-secs), treasury bills (T-bills), and other money-market instruments.
Unlike equity funds, debt funds provide stability with reasonable safety. They often carry less risk than equity funds and come with capital preservation benefits.
Key Features of Debt Mutual Funds:
- Focus on Fixed Income: The fund manager invests a majority of your capital in fixed-income assets to provide capital safety.
- Steady Income Potential: With debt securities, the fund generates steady income through interest payments of the underlying debt securities.
- Reduced Volatility: Unlike equity funds, market volatility has minimal impact on debt funds, which are more prone to interest rate risk, credit risk, and liquidity risk.
- Varied Duration Options: Debt funds are available in varying durations, like short-term, medium-term, and long-term, depending on the maturity of instruments.
- Diversification: It distributes risk among several issuers and industries and provides exposure to a range of debt instruments.
Benefits Of Investing In Debt Funds
Investing in debt mutual funds has several benefits for investors with a conservative mindset. Here's what you can get from these funds:
Stability and Predictability
Debt funds invest in fixed-income instruments, which are naturally less volatile than equity markets. This stability makes them preferable for conservative investors aiming for a steady income source.
Liquidity
Because there is no lock-in period, many debt mutual funds allow investors to withdraw their money quickly. This high liquidity ensures you can withdraw (liquidate) funds when needed.
Diversification
By investing in a hybrid mix of debt securities, these funds spread risk across various instruments. Thus, any single default or credit event does not affect the entire portfolio.
Professional Management
Here, experienced fund managers handle the debt funds to oversee the portfolio on a frequent basis and make well-informed choices based on interest rate fluctuations, credit ratings, and market conditions.
Who Should Invest In Debt Mutual Funds?
Unlike any investment product, even debt funds cater to specific investors. It includes:
- Conservative investors who prefer stability and have a low risk appetite.
- Investors looking for regular income invest in fixed-income securities that pay periodic interest.
- For those concerned about tax efficiency, certain debt funds offer benefits, especially when held for longer durations.
- Those looking to park their savings for short or medium-term.
- Investors aiming to diversify their portfolios to balance the higher risks in equity investments with debt funds.
How Does A Debt Mutual Fund Work?
The only difference in how debt funds work is the asset allocation done in each type. Here's an overview of how fund managers and Asset Management Companies (AMCs) operate this fund:
Pooling of Investor Funds
At the time of NFO (New fund offer), the debt fund is open for subscription to the public. Collectively, investors' money is collected and then managed by professional fund managers.
Investment in Fixed-Income Securities
These pooled funds are allocated across various fixed-income instruments, as per the fund strategy, and including:
- Government Securities: Treasury bills and government bonds.
- Corporate Bonds: Debt securities issued by companies.
- Money Market Instruments: Commercial papers and certificates of deposit.
Professional Management and Diversification
Over time, the fund managers actively manage the portfolio to match the fund's return rate. They have the option to select securities based on criteria like maturity, interest rate outlook, and credit quality. If needed, they can adjust the asset holdings and maintain the risk-reward ratio.
Evaluating fund performance
For any mutual fund, the performance can be viewed through its NAV (Net Asset Value). This value reflects earnings (interest income and capital appreciation) and may fluctuate based on the performance of the investments made.
Redemption and Liquidity
Investors can redeem open-ended debt fund units at any time and receive the current NAV, less any applicable exit loads or fees. However, some debt funds are closed-ended schemes with a defined lock-in period. This gives investors flexibility and liquidity to withdraw funds at any time.
What Are The Types Of Debt Funds?
Debt mutual fund investments come in various categories, each tailored to specific investment horizons and risk appetites. Here's an overview of some popular types:
| Sr no. | Types of Debt Funds | Type of Scheme | Characteristics |
|---|---|---|---|
| 1 | Overnight Funds | Open-ended scheme | Invests in debt securities with a maturity of one day. |
| 2 | Liquid Funds | Open-ended scheme | Debt and money market instruments with maturities up to 91 days. |
| 3 | Ultra-Short Duration Funds | Open-ended scheme | Investing in debt and money market instruments ensures the fund's Macaulay duration is between 3 and 6 months. |
| 4 | Low Duration Funds | Open-ended scheme | Invests in debt and money market instruments with a maturity of 6 to 12 months. |
| 5 | Money Market Funds | Open-ended scheme | This scheme invests in 1-year money market securities. |
| 6 | Short Duration Funds | Open-ended scheme | With Macaulay's duration, they invest in short-term money-market securities with durations of 1 to 3 years. |
| 7 | Medium Duration Funds | Open-ended scheme | Here, the duration is between 3 and 4 years. They invest primarily in debt and money market securities. |
| 8 | Medium to Long Duration Fund | Open-ended scheme | An extended version of a medium-duration fund with an investment period of 4 to 7 years. |
| 9 | Long Duration Funds | Open-ended scheme | Investment in debt securities and money market instruments for more than 7 years. |
| 10 | Dynamic Bond Funds | Open-ended scheme | Fund managers have the flexibility to invest across varying bond durations. |
| 11 | Corporate Bond Funds | Open-ended scheme | Minimum 80% investment in high-rated corporate bonds. |
| 12 | Gilt Funds | Open-ended scheme | At least 80% of the investment in G-secs (government securities). |
| 13 | Gilt Fund with 10-year constant duration | Open-ended scheme | Minimum investment of 80% in G-secs with a duration equal to 10 years. |
| 14 | Credit Risk Fund | Open-ended scheme | Invests at least 65% of assets in lower-rated corporate bonds, typically those with a rating of 'AA' or below. |
| 15 | Banking and PSU Fund | Open-ended scheme | Minimum investment of 80% in debt securities of Banking, PSU (Public Sector Undertakings), and Public Financial Institutions. |
| 16 | Floater Fund | Open-ended scheme | Invests at least 65% in debt instruments with floating interest rates. |
| 17 | Fixed Maturity Plans (FMP) | Closed-ended scheme | Invest in fixed-income securities maturing in line with the fund’s tenure. One can apply only during an NFO (New Fund Offer) and redeem only on maturity. |
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Disclaimer
The information provided on this page is for informational purposes only and should not be construed as investment advice, recommendation, or solicitation to buy or sell any securities or financial pr...
Frequently Asked Questions
- Investment Horizon: Find a fund that matches your goal and fund duration.
- Risk Appetite: Choose funds based on comfort with credit and interest rate risk.
- Credit Quality: Consider reasonable bond credit ratings or select high-rated securities to reduce default risk.
- Expense Ratio: Investing in a debt fund with a lower expense ratio can improve long-term yield.
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