In the fast-paced world that is changing daily, it is really important for us to understand the financial world that is paving the way to these new changes. After taking the hard hits from the pandemic our economy is presented not just with challenges but with new twists and turns as well. The worst might be behind us but it is still difficult for investors to choose a fund that is completely insulated from such risks. To keep the changes and incomes in pace with each other a low-risk option is termed as the best option.  We’re coming with a few debt mutual funds, which will be a good option for investors.

What are debt mutual funds?

Debt mutual funds invest in securities that generate fixed income by many money market instruments. All these instruments have a pre-decided maturity date and interest rate that the buyer can earn on maturity and hence the name fixed-income securities. The returns are usually not affected by fluctuations in the market. Therefore, debt securities are considered to be low-risk investment options.

Investments can be scary but knowing the safe and full proof approach can increase the profits and decrease the risks. Debt Mutual Funds have also undergone some inevitable changes with the changes seen by the current economy. Hence, the ways by which you can approach debt mutual fund in today’s scenario are suggested below-

Types of debt mutual funds are:-

Dynamic Bond Funds

The fund manager keeps changing portfolio composition as per the fluctuating interest rate regime. 

Advantage: Dynamic bond funds have different average maturity periods as these funds take interest rate calls and invest in instruments of longer and as well as shorter maturities.

Income Funds

Income Funds invest predominantly in debt securities and take a call on the interest rates with extended maturities.

Advantage: Income funds are more stable than dynamic bond funds. The average maturity of income funds is around five to six years.

Short-term and ultra short-term debt funds

Short term and Ultra short term are the debt funds that invest in instruments with shorter maturities, ranging from one year to three years. 

Advantage: Short-term funds are ideal for conservative investors as these funds are not affected much by interest rate movements.

Liquid funds

Liquid funds invest in debt instruments with a maturity of not more than 91 days. Liquid funds have rarely seen negative returns. 

Advantage: These funds are better alternatives to savings bank accounts as they provide similar liquidity with higher yields.

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Gilt funds

Gilt Funds invest in only government securities and high-rated securities with very low credit risk. 

Advantage: The government seldom defaults on the loan it takes in the form of debt instruments therefore, it makes gilt funds an ideal choice for risk-averse fixed-income investors.

Credit opportunities funds

Credit opportunities funds do not invest as per the maturities of debt instruments. These funds try to earn higher returns by holding lower-rated bonds that come with higher interest rates. 

Advantage: Credit opportunities funds are relatively riskier debt funds but they can also yield good benefits.

Fixed maturity plans

Fixed Maturity Plans invest in fixed income securities such as corporate bonds and government securities. All Fixed Mutual Plans have a fixed horizon for which your money will be locked-in. This horizon can be in months or years. 

However, you can invest only during the initial offer period. It is like a fixed deposit that can deliver superior, tax-efficient returns but does not guarantee high returns.

The top 5 mutual fund schemes are:-

IDFC government securities investment

AUM- Rs. 2,370 Cr
1 Y RETURNS- 10.2 %

Fund Performance: The fund has given some dynamic numbers. In the last three years, the fund has given 11.93% annualized returns. Last year the returns presented were 10.17%.

Why Invest- The fund has not only outperformed other similar mutual funds but has also given some remarkable results in the past year with returns of 10.17%. The minimum amount to invest in the scheme is Rs. 5,000 and the minimum SIP investment amount is Rs. 1,000. 

DSP government securities direct plan growth

AUM- Rs. 606 Cr
1 Y RETURNS- 10.6 %

Fund Performance: The Fund has given a great performance in the last three years with 11.7% annualized returns. In the last years, the DSP Government Securities presented returns of 10.59%. 

Why Invest: the minimum lumpsum amount to invest in the funds is Rs. 500 and the minimum amount to start a SIP is also Rs. 500. The Fund is making a way for itself by improving and attracting many new schemes. 

SBI Magnum constant maturity fund direct growth

AUM- Rs. 881 Cr
1 Y RETURNS- 8.4 %

Fund Performance: The fund has given the annualized returns of 10.87% in the last three years and its returns were 8.39% in the last year alone. It is continuously hitting the new benchmarks in the Debt segment. 

Why Invest: The minimum SIP investment in the SBI magnum is Rs. 500 and the minimum amount needed to be the part of these funds is the investment of Rs. 5,000. 

Kotak dynamic bond fund direct growth

AUM- Rs. 2, 763 Cr
1 Y RETURNS- 8.7 %

Fund Performance: The fund has presented returns of 10.6% in the last three years and returns of 8.74% in the last year. The fund performance has been constant in the Debt segment. 

Why Invest: Going into the lane of safe options, the minimum investment amount in the fund is Rs. 5000, and the minimum SIP investment amount is Rs. 500.

ICICI Prudential all seasons bond fund direct plan growth

AUM- Rs. 5,472 Cr
1 Y RETURNS- 10.2 %

Fund Performance: The fund has given annualized returns of 9.96% in the last three years. Last year returns from ICICI Prudential were 10.17%. The Debt segment is hitting new benchmarks every year with some new schemes. 

Why Invest: The minimum investment needed for the fund is Rs. 5000 and the minimum SIP investment amount required for the scheme is Rs. 100. You can always make your way up starting with the small investments. 

Current interest rate scenario 

At its monetary policy meeting ending on 5 February, the Reserve Bank of India (RBI) kept its policy rates unchanged, which met market expectations almost perfectly. The RBI left the reverse repurchase rate, the repurchase rate, and the marginal standing facility rate at 3.35%, 4.00%, and 4.25%, respectively. 

Looking forward, we estimate Interest Rate in India to stand at 3.50 in 12 months’ time. 67 in the long-term, the India Interest Rate is projected to trend around 3.50 percent in 2021. 

Major advantages of debt mutual funds

Risk Investors really prefer going for Debt Mutual Funds as the best investment instruments with some extraordinary benefits some of which are mentioned below: 

  • An investor can withdraw the sum anytime they want as these funds are generally extremely liquid. 
  • One of the major benefits is that you can withdraw partially without entirely breaking your fund. 
  • They are also more tax-efficient than similar investment instruments that are available in the market. 
  • TDS is also not applicable to debt funds. 
  • If the interest rate drops then you can surely expect a much higher return on your long-term debt funds. 


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