Top Rated Debt Mutual Funds in 2026 - Best Debt Funds

Best Debt Funds to Invest in 2026

Note: 3Y & 5Y returns are annualised. Rest everything is absolute.

Scheme	AUM (in Cr.)	Fund Age	1W	1M	3M	6M	1Y	3Y	5Y
DSP Credit Risk Fund Direct Growth Compare	₹ 287	13 Yrs	-0.22%	0.43%	3.16%	9.84%	11.22%	16.83%	13.31%
Aditya Birla Sun Life Credit Risk Fund Direct Growth Compare	₹ 1,584	11 Yrs	-0.20%	0.70%	3.39%	4.72%	12.94%	13.21%	10.93%
HSBC Credit Risk Fund Direct Growth Compare	₹ 460	13 Yrs	-0.05%	0.64%	2.70%	3.49%	6.68%	11.82%	9.49%
Aditya Birla Sun Life Medium Term Fund Direct Growth Compare	₹ 3,324	13 Yrs	-0.30%	0.44%	3.28%	3.87%	9.46%	10.73%	12.81%
Bank of India Credit Risk Fund Direct Growth Compare	₹ 92	11 Yrs	0.00%	0.59%	1.95%	8.75%	17.66%	10.06%	27.77%
Invesco India Credit Risk Fund Direct Growth Compare	₹ 166	11 Yrs	-0.19%	0.52%	2.90%	5.01%	8.43%	9.72%	8.46%
ICICI Prudential Credit Risk Fund Direct Growth Compare	₹ 6,370	13 Yrs	-0.25%	0.75%	3.16%	4.10%	8.76%	9.18%	8.07%
Kotak Medium Term Fund Direct Growth Compare	₹ 1,934	12 Yrs	-0.52%	0.47%	3.26%	3.28%	7.70%	9.13%	7.54%
Nippon India Credit Risk Fund Direct Growth Compare	₹ 1,572	13 Yrs	-0.22%	0.54%	2.88%	3.93%	7.87%	8.96%	7.91%
Axis Credit Risk Fund Direct Growth Compare	₹ 392	12 Yrs	-0.10%	0.80%	3.45%	4.47%	8.68%	8.92%	7.72%
SBI Credit Risk Fund Direct Growth Compare	₹ 2,196	13 Yrs	-0.04%	1.00%	3.71%	4.85%	8.58%	8.69%	7.78%
Kotak Credit Risk Fund Direct Growth Compare	₹ 777	13 Yrs	-0.29%	0.63%	3.09%	3.55%	7.90%	8.69%	6.80%
ICICI Prudential Medium Term Bond Fund Direct Growth Compare	₹ 5,516	13 Yrs	-0.37%	0.63%	3.21%	3.84%	8.03%	8.61%	7.50%
Nippon India Medium Duration Fund- Direct Bonus Plan Compare	₹ 148	12 Yrs	-0.25%	0.47%	2.90%	3.29%	6.54%	8.57%	6.90%
Axis Strategic Bond Fund Direct Growth Compare	₹ 2,088	13 Yrs	-0.27%	0.47%	3.14%	3.62%	7.21%	8.54%	7.46%
Axis Floater Fund Direct Growth Compare	₹ 146	5 Yrs	-0.27%	0.65%	3.63%	4.56%	7.86%	8.52%	7.26%
Nippon India Medium Duration Fund Direct Growth Compare	₹ 148	12 Yrs	-0.43%	0.29%	2.83%	3.18%	6.45%	8.50%	6.87%
Baroda BNP Paribas Credit Risk Fund Direct Growth Compare	₹ 178	11 Yrs	0.00%	0.54%	2.17%	3.36%	7.04%	8.37%	9.33%
360 ONE Dynamic Bond Fund Direct Growth Compare	₹ 570	13 Yrs	-0.55%	0.39%	3.41%	3.20%	6.68%	8.37%	7.02%
HDFC Credit Risk Debt Fund Direct Growth Compare	₹ 7,698	12 Yrs	-0.24%	0.75%	3.19%	3.97%	7.67%	8.32%	7.22%
Franklin India Floating Rate Fund Direct Growth Compare	₹ 290	13 Yrs	0.04%	0.43%	2.07%	3.23%	6.66%	8.19%	7.19%
Bandhan Gilt Fund Direct Growth Compare	₹ 1,883	13 Yrs	-1.17%	-0.01%	3.76%	5.66%	8.80%	8.19%	6.54%
Kotak Dynamic Bond Fund Direct Growth Compare	₹ 2,381	13 Yrs	-0.47%	0.72%	3.93%	4.41%	7.58%	8.15%	6.90%
Bandhan Gilt Fund with 10 year Constant Duration Fund Direct Growth Compare	₹ 293	13 Yrs	-0.62%	0.17%	3.77%	3.25%	6.39%	8.11%	6.19%
Franklin India Corporate Debt Fund Direct Growth Compare	₹ 1,345	13 Yrs	-0.11%	0.39%	2.26%	3.03%	6.31%	8.07%	6.75%
HDFC Medium Term Debt Fund Direct Growth Compare	₹ 3,604	13 Yrs	-0.32%	0.49%	3.11%	3.58%	7.03%	8.03%	6.88%
ICICI Prudential All Seasons Bond Fund Direct Growth Compare	₹ 13,321	13 Yrs	-0.38%	0.54%	3.41%	3.63%	6.48%	8.00%	7.29%
Baroda BNP Paribas Banking & PSU Bond Fund Direct Growth Compare	₹ 27	5 Yrs	0.18%	0.98%	1.37%	3.39%	8.24%	7.98%	0.00%
ICICI Prudential Short Term Fund Direct Growth Compare	₹ 19,416	13 Yrs	-0.26%	0.43%	2.75%	3.30%	6.51%	7.95%	7.24%
ICICI Prudential Floating Interest Fund Direct Growth Compare	₹ 9,590	13 Yrs	-0.18%	0.42%	2.59%	3.32%	6.76%	7.95%	7.13%
SBI Medium Duration Fund Direct Growth Compare	₹ 6,524	13 Yrs	-0.26%	0.62%	3.32%	3.69%	7.17%	7.94%	6.90%
HSBC Medium Duration Fund Direct Growth Compare	₹ 687	11 Yrs	-0.40%	0.24%	2.65%	3.04%	6.14%	7.93%	6.82%
Bandhan Floater Fund Direct Growth Compare	₹ 224	5 Yrs	-0.28%	0.42%	2.97%	3.80%	6.90%	7.92%	6.78%
Baroda BNP Paribas Corporate Bond Fund Direct Growth Compare	₹ 270	13 Yrs	-0.20%	0.46%	3.04%	3.35%	6.26%	7.90%	6.25%
HSBC Low Duration Fund Direct Growth Compare	₹ 994	13 Yrs	-0.07%	0.49%	2.18%	3.25%	6.29%	7.89%	6.89%
Mahindra Manulife Short Duration Fund Direct Growth Compare	₹ 82	5 Yrs	-0.34%	0.30%	2.72%	3.28%	6.18%	7.86%	6.68%
UTI Credit Risk Fund Direct Growth Compare	₹ 253	13 Yrs	-0.17%	0.58%	2.61%	3.37%	6.93%	7.86%	10.21%
Axis Short Duration Fund Direct Growth Compare	₹ 8,266	13 Yrs	-0.28%	0.30%	2.62%	3.02%	6.09%	7.86%	6.82%
DSP Floater Fund Direct Growth Compare	₹ 329	5 Yrs	-0.39%	0.24%	2.76%	3.06%	5.80%	7.86%	6.75%
Aditya Birla Sun Life Dynamic Bond Fund Direct Growth Compare	₹ 1,447	13 Yrs	-0.48%	0.34%	3.17%	3.37%	6.12%	7.85%	7.37%
Kotak Floating Rate Fund Direct Growth Compare	₹ 3,441	7 Yrs	-0.23%	0.28%	2.45%	2.75%	6.05%	7.83%	6.75%
Mahindra Manulife Dynamic Bond Fund Direct Growth Compare	₹ 54	8 Yrs	-0.52%	0.43%	3.20%	3.75%	6.03%	7.82%	6.19%
Axis Corporate Bond Fund Direct Growth Compare	₹ 8,002	9 Yrs	-0.37%	0.23%	2.74%	2.97%	5.85%	7.82%	6.82%
Bandhan Short Duration Fund Direct Growth Compare	₹ 9,287	13 Yrs	-0.35%	0.34%	2.75%	3.48%	6.35%	7.80%	6.49%
Bandhan Dynamic Bond Fund Direct Growth Compare	₹ 1,944	13 Yrs	-1.03%	0.09%	3.62%	4.97%	8.09%	7.78%	6.26%
Nippon India Short Duration Fund Direct Growth Compare	₹ 7,214	13 Yrs	-0.35%	0.22%	2.66%	2.79%	5.88%	7.78%	6.72%
Aditya Birla Sun Life Short Term Fund Direct Growth Compare	₹ 5,829	13 Yrs	-0.29%	0.27%	2.72%	2.92%	6.04%	7.76%	6.90%
ICICI Prudential Constant Maturity Gilt Fund Direct Growth Compare	₹ 1,990	11 Yrs	-0.64%	0.03%	3.70%	2.95%	5.73%	7.76%	6.23%
Bank of India Short Term Income Fund Direct Growth Compare	₹ 272	13 Yrs	-0.16%	0.43%	2.61%	2.91%	5.63%	7.74%	10.80%
Axis Dynamic Bond Fund Direct Growth Compare	₹ 992	13 Yrs	-0.37%	0.33%	3.43%	4.00%	6.95%	7.73%	6.52%

About Debt Funds

Debt Funds are a category of mutual funds that primarily invest in fixed-income instruments such as government securities, corporate bonds, treasury bills, money market instruments, and other debt securities. These funds aim to provide investors with regular income and capital preservation. The fund manager selects debt instruments based on factors such as credit quality, maturity period, and interest rate outlook.

Debt Funds invest in bonds and other fixed-income securities issued by governments, corporations, and financial institutions.
They offer relatively stable returns compared to equity funds, making them suitable for conservative investors.
The returns from debt funds come primarily from interest income and potential capital appreciation when interest rates fall.
These funds carry lower risk than equity funds but are not entirely risk-free, as they are subject to credit risk and interest rate risk.

Debt Funds serve as an important component of a diversified investment portfolio, offering stability and regular income. They are particularly suitable for investors with a low-to-moderate risk appetite and a shorter investment horizon.

Debt Funds offer several advantages that make them attractive for many investors:

They provide relatively stable and predictable returns compared to equity funds, making financial planning easier.
Debt Funds offer better liquidity than fixed deposits, allowing you to redeem your investment without significant penalties in most cases.
Professional fund managers actively manage the portfolio, optimizing returns by selecting the right mix of securities.
They offer diversification benefits when combined with equity investments in your portfolio.
Certain debt fund categories can be more tax-efficient than fixed deposits for investors in higher tax brackets.

These advantages make Debt Funds a compelling choice for investors seeking stability with better returns than traditional savings instruments.

Here are factors to consider before investing in Debt Funds:

Debt Funds are suitable if you have a low-to-moderate risk appetite and seek steady returns without the volatility of equity markets.
They work well for short-to-medium term goals (1-5 years) such as building an emergency fund or saving for a near-term expense.
Interest rate movements can impact debt fund returns. When rates rise, bond prices fall, and vice versa. Understanding this inverse relationship is important.
Credit risk is a factor to consider. Funds investing in lower-rated bonds may offer higher returns but carry the risk of default.

Debt Funds can be a valuable addition to your portfolio, especially for parking surplus funds or achieving short-term financial goals. However, they should not be considered as a complete substitute for equity investments if your goal is long-term wealth creation.

Debt Funds can be suitable for various types of investors:

Conservative investors who prioritize capital preservation and steady income over high growth potential.
Retirees seeking regular income from their investments without exposing their corpus to equity market volatility.
Investors looking to park surplus funds for short-to-medium term periods, earning better returns than savings accounts.
Those looking to diversify their overall portfolio by adding a fixed-income component alongside equity investments.

Consider your investment horizon, risk tolerance, and financial goals when deciding if Debt Funds are right for you. They work best as part of a balanced investment strategy.

FAQs

Debt Funds invest pooled money in fixed-income instruments such as government or corporate bonds, debentures, and other debt instruments. For investing in these instruments, funds receive interest payments at regular intervals which are then transferred to investors. This way, you earn income from Debt Funds. These funds are a relatively safer investment option and aim for steady returns.

Debt Funds typically invest in a variety of fixed-income securities, including government securities, corporate bonds, treasury bills, commercial paper, and other money market instruments. The choice of investments depends on the fund's objective, ranging from low-risk options like government bonds to higher-risk corporate bonds, aiming to balance risk and return.

Debt Funds can give profit through interest income and capital appreciation. The interest income is generated from the fixed-income securities the fund invests in. Additionally, if the market interest rates drop, the value of existing bonds with higher interest rates rises, potentially leading to capital gains. However, profits are not guaranteed as market conditions can affect returns.

No, Debt Funds are not tax-free. The returns from Debt Funds are subject to taxation based on the holding period. Short-term capital gains (if sold before three years) are taxed according to your income tax slab, while long-term capital gains (if held for more than three years) are taxed at 20% with or without indexation benefits as per the fund type.

To choose the best Debt Fund, consider factors such as the fund's credit quality, interest rate risk, and past performance. Look for funds with high-quality investments (low credit risk) and a duration that matches your investment horizon. Additionally, review the fund's expense ratio and the fund manager's experience.

Yes, you can sell or redeem your units in Debt Funds at any time. However, it's important to note that some funds may charge an exit load if you redeem your investment within a certain period, typically within a few months to a year from the date of investment.