Debt Mutual Funds – Best Debt Funds in India for 2025

Debt mutual funds invest in fixed-income securities such as government bonds, corporate bonds, treasury bills, and money market instruments. These funds are typically less volatile than equity funds, offering a more stable return profile.

Best Debt Funds in India Sorted by 5Y CAGR

Here is a list of top debt mutual funds in India 2025. Based on 5Y CAGR

Disclaimer: Please note that the above table is for educational purposes only, and is not recommendatory. Please do your own research or consult your financial advisor before investing. The data is derived from Tickertape Stock Screener and is subject to real-time updates.

Note: The list of debt mutual funds is derived from Tickertape Mutual Fund Screener and is as of 17th September 2025. The parameters used to curate the debt mutual funds list in India are as follows:

• Category: Debt 
• Plan: Growth 
• 5Y CAGR: Sort from highest to lowest.

🚀 Pro Tip: You can use Tickertape’s Stock Screener to research and evaluate stocks with over 200+ filters and parameters.

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Overview of Best Consumption Mutual Funds

SBI Liquid Fund

Among the largest liquid schemes in India, SBI Liquid Fund invests in very short-term instruments such as T-bills, CPs, CDs, and repos. Its portfolio maintains high liquidity with low duration. Disclosures emphasise maturity ladders, credit profile, and cash equivalents, reflecting SBI Mutual Fund’s scale in money-market debt management.

HDFC Liquid Fund

HDFC Liquid Fund is part of SEBI’s liquid category, offering exposure to instruments with maturity under 91 days. The scheme is often used by corporates and institutions for parking surplus funds. Portfolio focus remains on high-rated CPs, CDs, and government securities, while disclosures highlight cash-management practices and issuer diversification.

Aditya Birla SL Liquid Fund

Aditya Birla Sun Life Liquid Fund maintains a short-tenor portfolio built around laddered maturities of CPs, CDs, T-bills, and TREPS. Known for emphasising liquidity and high credit quality, the scheme publishes detailed maturity and credit allocations. Its NAV reflects daily money-market movements, aligning with its focus on cash-flow management.

ICICI Pru Liquid Fund

ICICI Prudential Liquid Fund manages a broad portfolio of instruments maturing within 91 days, including repos and treasury securities. It is one of the category’s widely tracked schemes, given ICICI Prudential AMC’s scale. Fund documents show allocation across high-quality issuers, portfolio liquidity levels, and short duration exposure consistent with SEBI norms.

Tata Money Market Fund

Tata Money Market Fund sits in the money-market category, investing in instruments with maturities up to one year. Unlike liquid schemes, it holds slightly longer-tenor debt, balancing liquidity with marginally higher yield opportunities. The fund portfolio typically includes T-bills, CDs, and CPs, with disclosures on credit distribution and maturity ranges.

SBI Savings Fund

SBI Savings Fund falls under the Ultra-Short Duration category with Macaulay duration between three and six months. The scheme blends money-market papers and short-term bonds. Its portfolio focus balances liquidity with moderate duration exposure. Factsheets highlight tenor management, credit composition, and issuer diversification across sectors within the short-term debt space.

Kotak Liquid Fund

Kotak Liquid Fund invests in very short-dated instruments maturing within 91 days, aligning with SEBI’s liquid category norms. The scheme maintains high-quality portfolios with CPs, CDs, T-bills, and repos. Known for conservative positioning, it reports maturity distributions, credit ratings, and liquidity buffers in its monthly disclosures for transparency.

ICICI Pru Money Market Fund

ICICI Prudential Money Market Fund invests in instruments with maturities up to one year, such as CPs, CDs, T-bills, and repos. Unlike liquid funds, it can carry slightly longer residual maturities. The scheme highlights credit quality, sector exposure, and maturity ladders in disclosures, aligning with money-market category characteristics.

Axis Liquid Fund

Axis Liquid Fund is classified under SEBI’s liquid category and invests in instruments with maturities of up to 91 days. The scheme portfolio often reflects a mix of T-bills, CDs, CPs, and repos. It emphasises high liquidity and publishes regular updates on credit exposures, issuer spread, and maturity buckets.

HDFC Money Market Fund

HDFC Money Market Fund belongs to SEBI’s money-market category, with holdings restricted to instruments maturing within one year. The portfolio typically includes T-bills, CDs, CPs, and repos. The scheme differs from liquid funds by carrying slightly longer tenors, as seen in maturity ladder disclosures and periodic credit quality reporting.

What Are Debt Mutual Funds?

Debt mutual funds pool money from multiple investors and invest it in fixed-income securities. These securities have predefined maturity dates and fixed interest rates, making them suitable for investors seeking lower risk. Since returns are relatively unaffected by market volatility, debt mutual funds are considered safer than equity investments, though they typically offer moderate returns.

Taxation on Debt Mutual Funds in India

Since many mutual funds in India are equity-oriented (index funds or active equity funds), their taxation follows the rules for equity mutual funds as per the 2024 Union Budget.

How to Invest in Debt Mutual Funds?

You can easily start to invest in debt funds by following these steps:

1. To invest in the best debt mutual funds, you can visit a mutual fund investment platform such as smallcase.
2. The next step is to research and identify the debt mutual funds that match your financial goals. Tools like the Tickertape Mutual Fund Screener can help you filter and compare funds based on parameters such as returns, expense ratio, and fund size.
3. Once you shortlist the funds, visit smallcase, log in, and search for the fund by name. You can then choose the investment mode, either a one-time lump sum or a debt mutual fund SIP, and complete the process.

How Do Debt Mutual Funds Work?

When companies or governments need funds, they issue bonds or debt instruments. Asset Management Companies (AMCs) pool investor money and buy these securities. Investors earn returns from the interest payments and potential capital appreciation. The fund’s Net Asset Value (NAV) reflects these earnings and fluctuates based on interest rate movements and market demand.

Types of Debt Mutual Funds

• Liquid Funds: These funds invest in very short-term instruments, often maturing in a few days. They are designed to provide quick access to cash while offering better returns than a savings account.
• Overnight Funds: These funds invest in securities that mature within a single day. They are typically used to park idle cash, offering a more efficient alternative to a savings account for very short-term periods.
• Ultra-Short & Low Duration Funds: These funds invest in instruments with maturities within 3–6 months. While they provide slightly better returns than liquid funds, they come with a limited level of volatility.
• Short Duration Funds: These funds invest in bonds maturing in 1–3 years. They typically offer a balance between returns and risk, making them a common choice for those with short-term financial goals.
• Medium & Long Duration Funds: These funds hold longer-term securities, typically with maturities of 3–7 years. They are influenced by interest rate changes, which can affect their returns, making them suitable for those with a longer investment horizon.
• Dynamic Bond Funds: These funds adjust their holdings actively based on shifting interest rates. They aim to balance risk and returns, adapting to the changing market environment.
• Corporate Bond Funds: These funds focus on bonds issued by companies with high credit ratings. They offer a relatively stable investment with moderate returns compared to government-backed bonds.
• Credit Risk Funds: These funds invest heavily in lower-rated securities that offer higher yields. While they may offer greater returns, they also carry higher default risk, making them suitable for more risk-tolerant investors.
• Government Securities (G-Sec) Funds: These funds invest in sovereign bonds issued by the Government of India. As they are backed by the government, they are considered to have negligible default risk, making them a safer option for conservative investors.
• Bank & PSU Debt Mutual Funds: These funds focus on debt securities issued by banks and public sector undertakings (PSUs). They offer a balance between safety and moderate returns, as they are less risky than corporate bonds but offer slightly higher yields than government securities.
• Target Maturity Funds: These funds track a specific bond index and have a fixed maturity date, making them a predictable option. They are designed to align with medium- to long-term investment goals and provide a more structured investment experience.

Advantages of Investing in Debt Mutual Funds

• Liquidity: Unlike fixed deposits, where money gets locked for a term, most debt mutual funds allow redemption of units anytime. The amount usually reaches your bank account within 1–2 working days.
• Flexibility: You can invest either as a lump sum or via SIP (Systematic Investment Plan), depending on your budget and preferences.
• Tax Efficiency: Tax is applied only when you redeem, unlike a bank FD, where interest is taxed annually. Investments made before April 2023 may be eligible for indexation benefits on holdings beyond three years.
• Lower Volatility: These funds primarily invest in bonds, which tend to be less impacted by stock market fluctuations. For example, government securities-backed debt mutual funds often maintain stability during periods of stock market volatility.
• Partial Withdrawals: You may withdraw part of your invested amount to meet short-term needs without affecting the entire portfolio.
• Potential for Higher Returns: While debt mutual funds carry risks, they might offer higher post-tax returns compared to bank FDs, particularly for long-term investments.

Risks Associated with Debt Mutual Funds

• Interest Rate Risk: Bond prices and interest rates move in opposite directions. When interest rates rise, the value of existing bonds falls, which reduces returns. For example, if you hold a 6% bond and new bonds are issued at 8%, your older bond looks less attractive and loses market value.
• Credit Risk: If a company that issues bonds defaults, the value of the fund drops. Credit risk funds carry higher exposure. In 2018, the IL&FS default affected several debt mutual funds that held its bonds, showing how credit ratings play an important role.
• Liquidity Risk: Some bonds in a fund’s portfolio may not find enough buyers in the market. In such cases, the fund may have to sell them at a discount during redemptions.
• Exit Load: Certain funds charge a small fee if you redeem units before a set period. This charge does not apply to all funds but remains a possible cost.

Factors to Consider Before Investing

• Investment Objective: Understanding your reason for investing can guide your fund selection. Liquid funds are often used for short-term needs, while government bond funds may suit long-term safety goals.
• Investment Horizon: Matching your goal’s time frame with the appropriate fund type can be important. Overnight or liquid funds may be suitable for shorter durations, while medium- to long-duration funds might be considered for longer-term goals.
• Yield to Maturity (YTM): This metric indicates potential returns if invested until maturity. A higher YTM might indicate higher returns, but could be associated with greater risk.
• Average Maturity: Funds with longer maturities are more sensitive to interest rate changes. If you prefer stability, opt for funds with shorter maturities.
• Fund Allocation & Credit Quality: Check where your money goes, whether the fund invests in high-rated government securities or riskier corporate papers.
• Fund Manager Expertise: Skilled fund managers balance risk and reward by selecting the right mix of instruments. Reviewing past performance can offer insights into their approach.

Who Should Invest in Debt Mutual Funds?

• Risk-Averse Individuals: Debt mutual funds may appeal to those prioritising capital preservation over high returns.
• Short-Term Goal Planners: Individuals looking to fund upcoming expenses like vacations, weddings, or emergencies might find these funds suitable.
• Diversification Seekers: Investors with equity-heavy portfolios might consider debt funds to reduce volatility and enhance diversification.
• Retirees or Near-Retirees: Those seeking a predictable income with relatively low risk could find debt funds worth exploring.
• First-Time Investors: For those new to investing, debt mutual funds could offer a way to enter the market with limited exposure to significant market fluctuations.

To Wrap Up…

Debt mutual funds are a category of fixed-income mutual funds that invest in fixed-income securities, offering less volatility than equity funds. They may be considered by investors looking for stability. Understanding the types of debt mutual funds, their advantages, risks, and taxation rules is important for aligning them with specific financial goals. Factors such as credit quality and investment horizon can influence the choice of debt mutual funds. Therefore, the investors should conduct their own research or consult financial advisors for better investment decisions.

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Frequently Asked Questions (FAQs) on the Best Debt Mutual Funds