Best Debt Mutual Funds to Invest In 2023

Mar 12th 2024
Mutual Fund

Best Debt Mutual Funds to invest, Mutual funds investment has become immensely popular in recent times among different types of investors. Though there are many reasons to invest in mutual funds, the most exciting feature of mutual funds investment is the flexibility it offers in all terms. Whether you want to invest for a short term, long-term, amount on a monthly basis, or a lumpsum amount, there is always a mutual fund scheme for you. Among different types of mutual funds, debt funds are extremely popular. Debt funds primarily invest the accumulated money in fixed-income securities like treasury bills, commercial paper, debentures, corporate bonds, etc.

What Does Mutual Funds Mean?

A mutual fund can be defined as a pool of money which is invested in different types of stocks by a dedicated fund manager. The money is deposited by a large number of investors in a mutual fund. The purpose of a mutual fund is to channel the money in different types of investment tools like stocks, bonds, commodities, currencies, and others and generate remarkable gains for the investors. Mutual funds are great for those investors who are kin to invest in stocks but don’t possess proper knowledge about stock investment.

What Are Debt Mutual funds?

What Are Debt Mutual Funds in India? Debt Funds can be termed as a type of mutual fund that produce returns by lending the fund amount to fixed-income securities. The risk level of a debt fund is determined by the lending tenure and the borrower’s category.

However, debt funds are considered to be less risky than equity funds as they invest the amount in debt instruments. If you are looking to invest in a debt fund, it is very much necessary for you to gain as much knowledge about them before investing.

Features Of Debt Funds Are Listed Below

Best Debt Mutual Funds to invest, Debt funds come in 16 different varieties, which are primarily divided into two groups depending on security and length. The former group includes programmes like money market funds, dynamic bond funds, gilt funds, banking and PSU funds. Examples of the latter category include ultra-short-term funds, long-term funds, medium-duration funds, and overnight funds.

Asset distribution: Debt and money market instruments make up a sizable component of the corpus invested by fixed-income securities.

Risk-return ratio: The best debt mutual fund guarantees stable and modest returns against insignificant market risks. However, credit risk and inflation risk can be there in fixed-income funds.

Read More- Best Small Cap Mutual Fund In 2023

Taxation In Debt Mutual funds

Short-term capital gains tax: In this scenario, debt fund units are sold in the market 3 years from the date of purchase. The taxes remain applicable as per the tax slab of the investors. Therefore, the taxes will be 31.20% (30% + 4% cess) in the case of investors belonging to the topmost tax slab.

Long-term capital gains tax: After a span of three years, if units of a debt fund are redeemed, 20% tax and indexation advantages will be applied to the profits. Every year that a person keeps money invested in a debt mutual fund qualifies for this benefit.

There is no applicability of TDS with Debt mutual funds.

Who Should Invest in Debt Funds?

Debt mutual funds are funds that have something for almost every type of investor. Whether you have short-term investment goals or a long-term objective, debt mutual funds emerge as the best choice. The selection of the best debt mutual fund depends on several factors like your investment objective, investment tenure, SIP or lumpsum, and others.

Type of Investor

Benefits of Investing in Debt Mutual Funds

New Investor

Better returns as compared to conventional investment tools

Equity Investor

For putting money for short-term gains

Safe Investor

Lower risk and stable returns in comparison to equity mutual funds

Seasoned Investor

Easy portfolio management and better returns for long-term wealth creation

Senior Citizen

Stable and improved returns

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Benefits Of Debt Mutual Funds

There are several benefits debt mutual funds offer to investors. A few of them are listed below:

Superior liquidity:

One major advantage of investing in debt mutual funds is liquidity. Investors can choose to redeem their fund units anytime, anywhere. The redeemed amount will be deposited in your bank in no time.


Investors have the option to invest in these mutual funds through a lumpsum amount or monthly instalments (SIP).

Stable Returns:

Stock market swings seldom affect returns since a large percentage of the investment corpus is devoted to debt instruments.

Fractional Withdrawals:

An investor may take a certain part of their invested amount out to fulfil criteria without making any effect on the remainder of their investment.


Compared to more various typical investment options such as fixed deposits, debt funds are more tax-efficient. When an investor redeems their units, the income from the debt fund levies the applicable tax. However, bank FD income is subject to annual taxation. If sold after three years from the purchase date, debt funds become also eligible for tax indexation advantages. 

Best Debt Mutual Funds To Invest In 2023

Looking to invest in the best debt mutual funds in 2023? Below are the top 7 debt mutual funds to consider.

Debt Mutual Fund Scheme


1 Year Returns

Aditya Birla Sun Life Medium Term Direct Plan Growth



Baroda BNP Paribas Credit Risk Fund Direct Growth



Bank of India Short Term Income Fund Direct Growth



UTI Bond Fund Direct Growth



Sundaram Low Duration Fund Direct Growth



Sundaram Short Duration Fund Direct Growth



Nippon India Ultra Short Duration Fund Direct Growth





1. Do Debt Mutual Funds Carry Risk?

In comparison to equity funds, debt mutual funds carry lesser risk to investors and provide safer and more stable returns to them.

2. Which Are The Safest Debt Funds?

The safest debt fund is Overnight Fund. These funds invest in assets with a one-day maturity, which eliminates all credit and interest risk and almost eliminates the possibility of a loss.

3. Is There Any Lock-In Period In Debt Mutual Funds?

No. there is no lock-in period in debt funds. An investor can choose to withdraw the amount fully or partially from the funds.

4. Can I Invest In A Short-Term Debt Mutual Fund?

Yes, it is beneficial to invest in short-term debt funds. They are better than long-term debt funds as long-term funds' values are more likely to decline as interest rates go up.

The Conclusion

From the aforementioned points, it becomes clear that debt mutual funds are suited for almost all types of investors. However, it is necessary to choose from the best debt mutual funds in Delhi that are known to provide stable returns over years. You can check from the given fund houses that have become immensely popular among investors in recent times.


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