List of the Best Fixed Income Mutual Funds for 2025 Based on 3Y CAGR
For many Indian millennials at the peak of their careers, having extra funds seems distant. While limited salaries often suffice to fulfil personal needs and identify the nature of inflation, saving seems challenging, especially when living in a metropolitan city. With limited savings in hand, choosing the right type of investment becomes crucial to building wealth opportunities for the future. Therefore, with Fixed-Income Mutual Funds, it is possible. Let’s learn how.
List of Best Fixed Income Mutual Funds in India
Let’s look at the best fixed income mutual funds sorted by their 3Y CAGR.
| Fund Name | Sub-Category | AUM (Rs. in Cr) | 3Y CAGR (%) | Expense Ratio (%) |
|---|---|---|---|---|
| IL&FS Infra Debt Fund - Series 2-A | Sectoral Fund - Infrastructure (Debt) | 215.32 | 35.69 | 0 |
| DSP Credit Risk Fund | Credit Risk Fund | 207.38 | 15.75 | 0.4 |
| HSBC Credit Risk Fund | Credit Risk Fund | 562.38 | 12.11 | 0.96 |
| Aditya Birla SL Credit Risk Fund | Credit Risk Fund | 1,052.93 | 11.71 | 0.67 |
| Invesco India Credit Risk Fund | Credit Risk Fund | 153.06 | 10.73 | 0.28 |
| Bank of India Short Term Income Fund | Short Duration Fund | 270.99 | 10.55 | 0.45 |
| Aditya Birla SL Medium Term Plan | Medium Duration Fund | 2,734.09 | 10.39 | 0.82 |
| Nippon India Credit Risk Fund | Credit Risk Fund | 990.50 | 9.20 | 0.69 |
| ICICI Pru Credit Risk Fund | Credit Risk Fund | 5,993.67 | 9.10 | 0.76 |
| Kotak Medium Term Fund | Medium Duration Fund | 1,832.10 | 9.09 | 0.67 |
Note: The data on the top 10 fixed income mutual funds in India list is from 30th September 2025, and the data is derived from Tickertape Mutual Fund Screener, using the following parameters:
- Category: Debt
- Plan: Growth
- 3Y CAGR: Sorted from highest to lowest
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Top Fixed Income Plans: An Overview
IL&FS Infra Debt Fund – Series 2-A
IL&FS Infra Debt Fund – Series 2-A is part of an infrastructure debt fund category focused on financing long-term infrastructure projects. It invests primarily in debt securities of companies engaged in infrastructure development, aiming to facilitate capital access for the sector while generating steady income.
DSP Credit Risk Fund
DSP Credit Risk Fund primarily invests in corporate bonds rated below the highest credit quality, seeking to earn higher yields. The fund’s returns depend on credit spreads and the performance of issuers, making it sensitive to changes in ratings and interest rate fluctuations.
HSBC Credit Risk Fund
HSBC Credit Risk Fund allocates a significant portion of its portfolio to lower-rated corporate debt instruments. It aims to capture higher interest income from credit spreads, balancing yield potential with exposure to credit risk within the debt market.
Aditya Birla Sun Life Credit Risk Fund
Aditya Birla Sun Life Credit Risk Fund primarily invests in non-sovereign debt instruments of varying credit quality. Its focus is on higher-yielding corporate bonds, reflecting an approach that seeks incremental returns by managing risk through diversification across issuers and maturities.
Invesco India Credit Risk Fund
Invesco India Credit Risk Fund focuses on corporate bonds and debentures rated below AAA, aiming to generate higher interest income. The fund manages credit exposure through careful issuer selection and diversification, reflecting a strategy tailored to credit-spread opportunities.
Bank of India Short Term Income Fund
The Bank of India Short Term Income Fund primarily invests in short-term debt and money market instruments. It focuses on maintaining relatively stable returns with lower interest rate risk, making duration management central to its portfolio construction approach.
Aditya Birla Sun Life Medium Term Plan
Aditya Birla Sun Life Medium Term Plan invests in a mix of corporate bonds and government securities with medium-term maturities. The fund aims to balance yield generation with moderate interest rate exposure, offering a duration profile longer than short-term debt funds.
Nippon India Credit Risk Fund
Nippon India Credit Risk Fund invests mainly in corporate bonds with ratings below AAA to capture higher coupon income. It focuses on issuer diversification and sectoral spread, reflecting the broader characteristics of credit-oriented debt schemes.
ICICI Prudential Credit Risk Fund
ICICI Prudential Credit Risk Fund allocates a majority of its assets to lower-rated corporate bonds. The fund seeks to benefit from credit spreads while managing potential downgrade or default risks through active monitoring and credit research.
Kotak Medium Term Fund
Kotak Medium Term Fund invests in a mix of corporate bonds and government securities with medium-term maturity profiles. The fund focuses on generating income while maintaining a balance between yield enhancement and interest rate sensitivity across market cycles.
What are Fixed Income Mutual Funds?
Fixed income mutual funds or mutual fund debt funds, are investment avenue that primarily invests in fixed-income securities, such as government securities (G-Secs), corporate bonds, CDs, and other money market funds. Debt funds are relatively stable investment avenues, however, the income may not be a fixed amount as it depends upon the performance of the fund.
How to Invest in Fixed Income Mutual Funds?
You can easily invest in fixed income mutual funds by following these steps:
- To invest in mutual funds, you can visit an equity investment platform such as smallcase or Tickertape.
- The next step would be to research and identify the best fixed income funds which aligns with your investment thesis. You can easily select and learn more about the best fixed income funds with the help of a financial tool like the Tickertape Mutual Fund Screener. With 50+ pre-loaded filters, it helps you to create a comprehensive list by giving insights about the fund’s performance. Try it now!
- Once you have selected the fixed return mutual funds based on different metrics and parameters, go to smallcase.com or the smallcase app, and login via your phone number. Click on ‘Discover‘ and enter the name of the specific mutual fund name in the search bar and hit enter. You can click on ‘invest now’ and select whether you want to invest a lump sum amount or start a SIP and start investing!
However, if you’re confused about which stocks to pick, you can explore smallcases:
- smallcases are readymade model portfolios of stocks/ETFs, that are based on a theme idea or strategy
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Here are a few popular smallcases among new investors:
Disclosures for aforementioned smallcases
What are the Different Types of Fixed Income Funds?
Here is a list of types of best income funds available.
- Long-Term Debt Funds: These funds are invested in government securities and corporate debt, maturing in 5 or 10 years. They may be more affected by interest rate changes, witnessing capital depreciation in rate hikes and appreciation in rate cuts.
- Short-Term Debt Funds: These funds invest in short-term instruments like G-Secs, short-term corporate papers, and money market instruments. Their Net Asset Value (NAV) might be less susceptible to interest rate shifts.
- Credit Opportunities Fund: This fund assumes a slightly higher credit risk, including AA-rated bonds for higher yields. However, careful bond selection is crucial to mitigate default risks.
- Floating Rate Debt Fund-Short Term: These funds invest in short-term floating-rate instruments, where interest rates vary with benchmarks like MCLR or the Bank rate.
- Floating Rate Debt Fund – Long Term: This is an extension of short-term floating rate funds with a longer maturity, potentially performing well in rising rate environments.
- Ultra-Short Term Funds: Also known as Liquid-Plus Funds, these funds invest in short-term papers with a maturity of less than one year, enhancing yields by incorporating a small portion of long-term paper.
- Long-Term Gilt Funds: These are similar to short-term gilt funds but with a longer maturity period, making them more susceptible to interest rate changes.
- MIP Aggressive Funds: Monthly Income Plans with a higher equity exposure (25-30%) for capital growth, balancing stability with alpha.
- MIP Conservative Funds: Unlike MIP Aggressive funds, where the equity component can go up to 25-30%, a conservative MIP limits its equity exposure to approximately 5-10%.
Components of Fixed Income Funds
Fixed income funds are dependent on the style of investments and expected returns. Let’s look at each of the components of the fixed income mutual funds.
- Debt Funds: Debt funds are fixed-income plans that primarily invest in relatively safer instruments such as government and corporate bonds, debentures, and other debt securities. The primary objective is to generate stable returns through interest income while maintaining a low-risk profile compared to equity investments.
- Money Market Funds: Money Market Funds are fixed income plans that invest in short-term, highly liquid instruments like treasury bills, commercial paper, short-term bank certificates of deposit (CDs), and banker’s acceptances. These funds are well-suited for short-term investments, typically up to 90 days, and are directly influenced by changes in interest rates.
- Exchange-Traded Funds: Exchange-traded funds (ETFs) are index funds traded on stock exchanges in the context of fixed-income plans. They mirror the performance of a specific index, such as Nifty, BSE Sensex, or S&P. ETFs provide investors with the flexibility to buy and sell shares in the cash market daily. Gold ETFs, a popular form of ETF, offer exposure to the performance of gold.
Features of Fixed Income Mutual Funds
Here is a list of features of fixed income mutual funds.
- Fixed income funds prioritise delivering a consistent income to investors rather than capital appreciation.
- This mutual fund type is suitable for investors who are looking for a steady return rather than increasing the value of their investment, especially retirees or those with a low-risk tolerance.
- Fixed-income funds are highly liquid, allowing investors to withdraw or redeem their funds whenever needed. This feature provides easy access to funds, enhancing the investor’s financial flexibility.
- Debt funds may provide better long-term returns than money market funds or CDs. However, ETFs can be slightly more profitable as they function similarly to equity funds.
- Fixed income mutual funds or fixed return mutual funds can be subject to the tax regulations applicable to debt funds. In practical terms, short-term capital gains are added to income and taxed according to the slab rate, while long-term capital gains incur a 10% tax without indexation and a 20% tax with indexation.
Risks Involved While Investing in Fixed Income Mutual Funds
Before we discuss how to choose the right fixed income investment options, let’s understand the two main risk factors.
- Interest Rate Risk: It may impact the prices of fixed income securities or fixed return mutual funds, moving inversely to changes in interest rates. When rates rise, prices fall, and vice versa. Each fixed income instrument may exhibit varying sensitivity to interest rate changes, known as duration, with longer durations indicating higher sensitivity.
- Credit Risk: Involves the potential for default, where the issuer fails to meet interest or principal payments. Rating agencies assess credit risk based on the issuer’s financial strength and assign credit ratings to instruments. If an instrument’s credit rating is downgraded, its price decreases, while an upgrade leads to a price increase.
Benefits of Investing in Fixed Income Mutual Funds
Now that we have covered potential risks, it’s time to look at the benefits of fixed income mutual funds.
- Lower Volatility: Debt funds are generally less volatile than equities and offer greater stability. This makes them suitable for risk-averse investors seeking capital preservation.
- Good Returns: Debt mutual funds are fixed income options that can offer good returns by investing in bonds and other fixed-income securities. Thus, these funds invest in bonds and can earn interest income on these investments.
- Diversification: They offer diversity within the fixed-income space, allowing you to invest in a variety of bonds (government, corporate, etc.) and reduce portfolio risk compared to individual bond selections.
Taxation on Fixed Income Mutual Funds as per the Union Budget 2024-25
The taxation on capital gains from your mutual fund investments is based on their holding periods and asset allocation. A few revisions were made to the tax rates, depending on their types, in the Union Budget 2024-25. It may be important to learn about these revisions when considering fixed income mutual funds. These changes include:
Debt Mutual Funds
- Short-Term Capital Gains (STCG): If you sell your debt fund units within a period of 36 months, the gains are classified as short-term capital gains. The STCG will be taxed according to your income tax slab rate.
- Long-Term Capital Gains (LTCG): For debt funds held for a period over 36 months, the gains are classified as long-term capital gains. The new budget outlines a few changes on the LTCG for debt funds, including:
- Tax Rate: A flat 12.5% tax rate applies to these gains.
- No Indexation Benefit: The previous benefit of adjusting the purchase price for inflation is removed. Now, the entire gain after three years is taxable at 12.5%.
- Change in Holding Period for Specified Mutual Funds: Previously, debt mutual funds with a holding period of over 36 months were taxed based on the investor’s tax slab, classified as Long-Term Capital Gains (LTCG). Now, for specified mutual funds where over 65% of the investment is in debt, the holding period for taxation has been reduced to over 24 months. These funds will still be taxed according to the investor’s tax slab as either LTCG or STCG.
| Capital Gains Tax | Holding Period | Old Rate | New Rate |
| Short-Term Capital Gains (STCG) | Less than 36 months | Taxed according to your income tax slab | Taxed according to your income tax slab |
| Long-Term Capital Gains (LTCG) | More than 36 months | 10% | 12.50% |
Factors to Consider Before Investing in Fixed Income Mutual Funds
Let’s consider the factors before investing in a mutual fund with regular income.
- Interest Rate Risk vs. Credit Risk: Understand that interest rate risk is typically temporary, fluctuating with market conditions, while credit risk can be more permanent. Consider your risk tolerance and investment horizon in managing these risks effectively.
- Know the Credit Quality of Your Scheme: You can evaluate the credit quality of the mutual fund scheme by reviewing the credit ratings assigned to the securities in its portfolio. Higher-rated securities can indicate lower credit risk.
- Keep Your Risk Appetite in Mind: Tailor your investment choices based on your risk appetite. Different fixed-income funds come with varying levels of risk, such as government bonds being lower risk than corporate bonds. Align your fund selection with your risk tolerance to ensure a suitable and comfortable investment experience.
To Wrap It Up…
In conclusion, fixed income debt funds can be a valuable investment option for individuals seeking a balanced and lower-risk portfolio. These funds can provide a steady income stream, and their flexibility in terms of risk profiles caters to a diverse range of investors. Understanding the nuances of interest rates and credit risks is essential for making informed investment decisions.
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Frequently Asked Questions(FAQs) on Fixed Income Mutual Funds
Duration represents the interest rate sensitivity of a fixed-income instrument. For example, if an instrument has a duration of 3 years, a 1% decrease in interest rates would result in a 3% increase in the instrument’s price, and vice versa. Duration is linked to maturity; the longer the maturity, the longer the duration.
Top fixed-income funds diversify across various sectors, favouring high-quality government and corporate bonds with strong ratings to maximise stable income and minimise risk.
Yes, just like equity funds, you can also invest in fixed-income debt funds via SIP. Different categories of debt funds strive to deliver competitive returns over the long term while maintaining lower risk and volatility compared to equity funds.
Fixed-income mutual funds are ideal for conservative investors who seek stable income, lower risk, and portfolio diversification. They are especially useful during periods of market uncertainty or for regular income needs.
Yield to Maturity (YTM) of the best fixed income funds can estimate the total return on a bond if you buy it at the current price, hold it till maturity, and receive all payments on time. It’s like an “internal rate of return” for holding a bond to its end date.
