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Mutual FundsDebt FundsDebt Mutual Funds
3 Year Average Returns
6.90%
Funds on Dhan
369
Debt Funds are a type of mutual fund that invest in fixed income securities such as bonds, treasury bills, commercial papers, etc. The Funds generate returns by earning interest income and capital gains from the securities. While these are the best Debt Mutual Funds to invest in, you must know these 3 things before you start investing.
- Goal: Debt Funds offer lower risk and stable returns. These Funds are suitable for investors who want to preserve their capital and earn regular income.
- Investment Horizon: Ideal for investors seeking steady income with lower risk, over a medium-term horizon of 3-5 years.
- Risk: Generally lower risk compared to equity Funds, but subject to interest rate changes and credit risk.
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 |
|---|---|---|---|---|---|---|---|---|---|
Compare | ₹ 326 | 13 Yrs | -0.11% | -0.05% | 0.58% | 2.70% | 10.26% | 13.68% | 13.32% |
Compare | ₹ 1,657 | 11 Yrs | -0.24% | -0.25% | 0.70% | 3.33% | 10.96% | 12.83% | 10.72% |
Compare | ₹ 440 | 13 Yrs | -0.18% | -0.01% | 0.76% | 2.84% | 5.66% | 11.54% | 9.04% |
Compare | ₹ 3,370 | 13 Yrs | -0.26% | -0.43% | 0.02% | 2.60% | 7.34% | 10.34% | 12.49% |
Compare | ₹ 74 | 11 Yrs | -0.06% | 0.31% | 1.34% | 8.38% | 16.98% | 10.00% | 27.82% |
Compare | ₹ 6,281 | 13 Yrs | -0.36% | -0.37% | 0.53% | 3.03% | 6.51% | 8.75% | 7.82% |
Compare | ₹ 167 | 12 Yrs | -0.05% | -0.15% | 0.28% | 2.65% | 6.89% | 8.75% | 8.32% |
Compare | ₹ 1,707 | 13 Yrs | -0.08% | 0.11% | 0.97% | 3.35% | 6.90% | 8.70% | 7.79% |
Compare | ₹ 145 | 12 Yrs | -0.25% | 0.47% | 2.90% | 3.29% | 6.54% | 8.57% | 6.90% |
Compare | ₹ 378 | 12 Yrs | -0.24% | -0.02% | 0.76% | 3.54% | 7.13% | 8.57% | 7.56% |
Compare | ₹ 1,912 | 12 Yrs | -0.48% | -0.73% | -0.23% | 2.25% | 4.81% | 8.55% | 7.13% |
Compare | ₹ 178 | 11 Yrs | 0.00% | 0.54% | 2.17% | 3.36% | 7.04% | 8.37% | 9.33% |
Compare | ₹ 1,686 | 13 Yrs | 0.09% | 0.26% | 0.06% | 4.25% | 7.21% | 8.32% | 6.41% |
Compare | ₹ 2,182 | 13 Yrs | -0.26% | -0.28% | 0.75% | 3.53% | 6.96% | 8.26% | 7.58% |
Compare | ₹ 769 | 13 Yrs | -0.33% | -0.40% | 0.54% | 2.80% | 5.58% | 8.24% | 6.54% |
Compare | ₹ 145 | 12 Yrs | -0.22% | -0.26% | -0.02% | 2.33% | 4.88% | 8.21% | 6.74% |
Compare | ₹ 149 | 5 Yrs | -0.28% | -0.43% | 0.11% | 3.00% | 5.60% | 8.13% | 7.03% |
Compare | ₹ 1,972 | 13 Yrs | -0.25% | -0.29% | 0.03% | 2.57% | 5.32% | 8.12% | 7.16% |
Compare | ₹ 5,295 | 13 Yrs | -0.42% | -0.53% | 0.03% | 2.57% | 5.50% | 8.10% | 7.17% |
Compare | ₹ 1,910 | 13 Yrs | 0.05% | 0.31% | 0.31% | 4.02% | 6.67% | 7.98% | 6.18% |
Compare | ₹ 27 | 5 Yrs | 0.18% | 0.98% | 1.37% | 3.39% | 8.24% | 7.98% | 0.00% |
Compare | ₹ 7,631 | 12 Yrs | -0.26% | -0.24% | 0.58% | 2.85% | 5.96% | 7.95% | 6.99% |
Compare | ₹ 247 | 13 Yrs | -0.06% | 0.07% | 0.77% | 2.59% | 5.81% | 7.88% | 7.10% |
Compare | ₹ 1,409 | 13 Yrs | -0.12% | -0.05% | 0.57% | 2.43% | 5.27% | 7.78% | 6.68% |
Compare | ₹ 831 | 13 Yrs | -0.03% | 0.20% | 1.10% | 2.88% | 5.85% | 7.70% | 6.93% |
Compare | ₹ 3,499 | 13 Yrs | -0.33% | -0.20% | 0.22% | 2.61% | 5.29% | 7.67% | 6.64% |
Compare | ₹ 549 | 13 Yrs | -0.52% | -1.04% | -1.22% | 1.59% | 3.20% | 7.67% | 6.52% |
Compare | ₹ 224 | 5 Yrs | -0.12% | 0.02% | 0.58% | 3.08% | 5.80% | 7.64% | 6.73% |
Compare | ₹ 8,680 | 13 Yrs | -0.09% | 0.09% | 0.58% | 2.93% | 5.47% | 7.62% | 6.45% |
Compare | ₹ 271 | 13 Yrs | -0.29% | -0.22% | 0.23% | 2.62% | 4.70% | 7.58% | 6.18% |
Compare | ₹ 2,219 | 13 Yrs | -0.39% | -0.82% | -0.53% | 2.55% | 4.01% | 7.58% | 6.35% |
Compare | ₹ 241 | 13 Yrs | -0.11% | -0.09% | 0.66% | 2.64% | 5.57% | 7.58% | 6.79% |
Compare | ₹ 7,425 | 13 Yrs | -0.21% | -0.12% | 0.27% | 2.36% | 4.77% | 7.56% | 6.69% |
Compare | ₹ 1,370 | 13 Yrs | -0.21% | -0.30% | -0.15% | 2.42% | 4.32% | 7.56% | 7.08% |
Compare | ₹ 131 | 5 Yrs | 0.12% | 0.36% | 0.89% | 2.43% | 7.26% | 7.53% | 6.17% |
Compare | ₹ 12,146 | 13 Yrs | 0.04% | 0.43% | 1.53% | 3.35% | 6.77% | 7.50% | 7.00% |
Compare | ₹ 8,297 | 13 Yrs | -0.20% | -0.23% | 0.28% | 2.27% | 5.53% | 7.50% | 6.91% |
Compare | ₹ 1,244 | 13 Yrs | -0.10% | 0.07% | 0.48% | 3.04% | 5.21% | 7.48% | 5.97% |
Compare | ₹ 3,240 | 7 Yrs | -0.16% | -0.05% | 0.38% | 2.33% | 5.04% | 7.48% | 6.62% |
Compare | ₹ 1,448 | 12 Yrs | 0.02% | 0.34% | 1.40% | 3.11% | 5.74% | 7.47% | 7.77% |
Compare | ₹ 668 | 11 Yrs | -0.18% | -0.41% | -0.43% | 1.89% | 4.13% | 7.47% | 6.50% |
Compare | ₹ 259 | 13 Yrs | -0.13% | -0.30% | 0.23% | 2.22% | 4.27% | 7.46% | 10.72% |
Compare | ₹ 79 | 5 Yrs | -0.29% | -0.38% | -0.08% | 2.22% | 4.68% | 7.45% | 6.49% |
Compare | ₹ 5,404 | 7 Yrs | 0.03% | 0.43% | 1.57% | 3.41% | 6.83% | 7.44% | 6.81% |
Compare | ₹ 31,690 | 13 Yrs | 0.03% | 0.38% | 1.50% | 3.25% | 6.45% | 7.44% | 6.89% |
Compare | ₹ 18,635 | 13 Yrs | -0.26% | -0.37% | 0.01% | 2.12% | 4.82% | 7.43% | 6.95% |
Compare | ₹ 6,419 | 13 Yrs | -0.29% | -0.55% | -0.00% | 2.62% | 5.13% | 7.43% | 6.61% |
Compare | ₹ 7,453 | 9 Yrs | -0.26% | -0.25% | -0.06% | 2.12% | 4.23% | 7.42% | 6.64% |
Compare | ₹ 6,379 | 13 Yrs | -0.22% | -0.21% | 0.06% | 2.20% | 4.36% | 7.41% | 6.57% |
Compare | ₹ 2,647 | 8 Yrs | 0.02% | 0.34% | 1.38% | 3.03% | 5.71% | 7.41% | 6.07% |
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Disclaimer: Mutual fund investments carry market risks; read all scheme-related documents carefully. Past performance does not guarantee future returns.
Types of Debt Funds
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 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.
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 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.
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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.
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