1. What are Best Debt Mutual Funds?

Debt mutual funds invest in fixed interest-earning instruments such as treasury bills and certificate of deposits. The main objective of a debt fund is to accumulate wealth through interest income and steady appreciation of the capital invested. The underlying assets generate a fixed rate of interest throughout the tenure for which investors stay invested in the fund. The fund manager of a debt fund invests in the underlying assets based on their respective credit ratings. A higher credit rating indicates that debt security has a higher chance of paying interest regularly along with the repayment of the principal upon expiry of the investment tenure. Apart from that, the fund manager aligns his investment strategy as per the overall interest rate movements.

2. Who Should Invest in Best Debt Mutual Funds?

Debt funds are suitable for those investors that are risk-averse and not ready to have equity exposure. Debt funds grow investor’s wealth with little to no risk. Additionally, these funds are concerned about regular income. Investors usually stay invested in debt funds for a short to medium-term horizon. You need to choose an appropriate debt fund as per your investment horizon.

Liquid funds may be suitable for a short-term investor who generally parks his or her surplus funds in a savings bank account. Liquid funds provide higher returns in the range of 7% to 9% in addition to the flexibility of withdrawals at any time just like a savings bank account. If you need to ride the interest rate volatility, then dynamic bond funds may be an ideal option. These funds are suitable for a medium-term investment horizon to earn higher returns than a 5-year bank FD.

3. Things to Consider as an Investor

a. Fund Objectives

Debt funds aim at optimising returns by diversifying the portfolio of various types of securities. You can expect them to perform predictably. It is because of this reason that debt funds are accessible among conservative investors.

b. Fund Category

Debt funds are further classified under various categories such as liquid funds, monthly income plans (MIPs), fixed maturity plans (FMPs), dynamic bond funds, income funds, credit opportunities funds, GILT funds, short-term funds, and ultra short-term funds.

c. Risks

Debt funds are subject to interest rate risk, credit risk, and liquidity risk. The fund value may fluctuate due to the movement in the overall interest rates. There’s a risk of default in the payment of interest and principal by the issuer. Liquidity risk is seen when the fund manager is not able to sell the underlying security due to lack of demand.

d. Cost

Debt funds charge an expense ratio to manage your investment. No fund house can charge above the limit set by the Securities and Exchange Board of India (SEBI).

e. Investment Horizon

An investment horizon of three months to one year is ideal for liquid funds. If you have a longer horizon of say two to three years, then you can explore short-term bond funds.

f. Financial Goals

Debt funds can be used to achieve a variety of goals such as earning additional income or for liquidity.

4. How to Evaluate Best Debt Mutual Funds?

a. Fund Returns

You need to look for consistent returns over long-term say three, five, or ten years. Choose funds that have outperformed the benchmark and peer funds consistently across different time frames. However, remember to analyse the fund performance, which matches your investment horizon to get results.

b. Fund History

Choose fund houses that have a strong history of consistent performance in the investment domain. Ensure that they have a consistent track record of at least say five to ten years.

c. Expense Ratio

It shows how much of your investment goes towards managing the fund. A lower expense ratio translates into a higher take-home return. Choose a fund which has a lower expense ratio and has the potential to give you superior performance.

d. Financial Ratios

You can use financial ratios such as standard deviation, Sharpe ratio, alpha, and beta, to analyse a fund. A fund having, higher standard deviation, and beta are riskier than a fund with lower beta and standard deviation. Look for funds with a higher Sharpe ratio, which means it gives higher returns on every additional unit of risk being taken.

5. Top 10 Best Debt Mutual Funds in India

While selecting a fund, you need to analyse the fund from various perspectives. Different quantitative and qualitative parameters can be used to arrive at the best debt funds as per your requirements. Additionally, you need to keep your financial goals, risk appetite, and investment horizon in mind.

While selecting a fund, you need to analyse the fund from various perspectives. Different quantitative and qualitative parameters can be used to arrive at the best debt funds as per your requirements. Additionally, you need to keep your financial goals, risk appetite, and investment horizon in mind.

Fund name	3-year returns	Link
SBI Magnum Constant Maturity Fund	9.27%	Invest Now
ICICI Prudential Constant Maturity Gilt Fund	8.18%	Invest Now
UTI Gilt Fund	6.78%	Invest Now
Axis Banking & PSU Debt Fund	8.39%	Invest Now
Kotak Dynamic Bond Fund	7.83%	Invest Now
SBI Magnum Gilt Fund	7.07%	Invest Now
Kotak Corporate Bond Fund	7.94%	Invest Now
Edelweiss Banking & PSU Debt Fund	8.25%	Invest Now
SBI Banking & PSU Fund	7.95%	Invest Now
Aditya Birla Sun Life Government Securities Fund	7.16%%	Invest Now

*The order of funds doesn’t suggest any recommendations. Investors may choose the funds as per their goals. Returns are subject to change.

Many times, investing in debt funds becomes complex. In case you don’t possess enough financial knowledge and are finding it too difficult to understand, then just reach out to us. We offer handpicked funds from experts.