Top 5 Debt Mutual Funds in India For 2026

Summary
Debt mutual funds invest in various debt instruments, such as government securities, corporate bonds, treasury bills, and money market instruments, to generate stable income.

They carry low volatility risk compared to equity funds, but are exposed to other risks, including inflation risk, interest rate risk, and credit risk.

Best 5 Debt Mutual Funds: Quick Comparison

Debt mutual funds are funds primarily investing in debt instruments, such as government bonds, corporate bonds, treasury bills, and other money market instruments. The best debt mutual funds in India as of 3rd August 2026 are listed below. The list below includes the best debt funds, based on their NAV, AUM, expense ratio, and returns.

Name	NAV	AUM (In ₹ Crores)	Expense Ratio (%)	1 year Returns (%)	3 years Returns (%)	5 years Returns (%)	Benchmark
Franklin India Liquid Super Institutional Fund	4,242.04	2,915	0.12	6.45	7.01	6.29	Nifty Liquid Index A-I TR INR
Franklin India Corporate Debt Fund	115.72	1,362	0.21	6.11	8.11	6.79	Nifty Corporate Bond TR INR
Franklin Money Market Fund	55.62	3,920	0.12	6.4	7.4	6.56	Nifty Money Market Index A-I
SBI Constant Maturity 10 Year Gilt Fund	69.49	1,666	0.32	4.06	7.44	6.19	Nifty 10 yr BM G-Sec PR INR
Aditya Birla Sun Life Floating Rate Fund	383.12	13,519	0.21	6.2	7.55	6.76	Nifty Low Duration Debt TR INR

Top 5 Debt Mutual Funds

Debt mutual funds are financial instruments that aim to invest in fixed-income securities, such as government securities, corporate bonds, treasury bills, and other money market instruments, to earn stable returns and lower impact from market movements.

Franklin India Liquid Super Institutional Fund

Franklin India Liquid Super Institutional Fund mainly focuses on short-term money market instruments, making it suitable for investors seeking stable income within a short period. The fund recorded consistent performance over the years, including a 1-year return of 6.45% with an expense ratio of 0.12%. The fund has an AUM of ₹4,242.04 crores.

Franklin India Corporate Debt Fund 

Franklin India Corporate Debt Fund mostly invests in high-quality corporate bonds with the objective of earning stable returns with a lower credit risk. This fund has an AUM of ₹115.72 crores with an expense ratio of 0.21%. It has delivered an 8.11% return in 3 years and 6.79% in 5 years. 

Franklin Money Market Fund

Franklin Money Market Fund aims to invest in short-term money market instruments while balancing liquidity and returns. Hence, this fund is not suitable for long-term wealth creation. The fund has delivered a 1-year return of 6.4% and a 5-year return of 6.56%, and includes an AUM of ₹55.62 crores.

SBI Constant Maturity 10 Year Guilt Fund

SBI Constant Maturity 10 Year Guilt Fund primarily focuses on government securities with a fixed maturity period of 10 years and also eliminates credit risk. The fund can benefit during interest rate declines. However, a rise in interest rates may impact it negatively. It has an AUM of ₹1,666 crores and recorded a 1-year return of 4.06%.

Aditya Birla Sun Life Floating Rate Fund

Aditya Birla Sun Life Floating Rate Fund mostly focuses on floating-rate debt instruments that adjust with changing interest rates. The fund has the highest AUM of ₹13,519 crores with an expense ratio of 0.21%. It recorded a 3-year return of 7.55% and a 5-year return of 6.76%

How We Selected These Debt Funds?

The debt mutual funds were selected based on qualitative and quantitative factors suitable for a wide range of investors.

1. Fund Category: Debt funds include various categories of fixed-income securities, including liquid, money market, floating rate, and gilt funds, where each security holds a different investment objective and horizon.  
2. Credit Quality: This displays the fund’s allocation to high-quality debt securities that reduce the occurrence of credit default and maintain portfolio stability. 
3. Interest Rate Sensitivity: Since interest rates fluctuate in the market, this displays the sensitivity towards changes in interest rates. 
4. Risk-adjusted Performance: This displays the fund’s performance while delivering competitive returns within the risk associated with the debt categories. It also shows its performance across different market conditions.

Debt Funds VS Other Funds Category

The table below shows how Debt mutual funds differ from other mutual funds.

Basis	Debt Funds	Equity Funds	Hybrid Funds
Primary Investment	Invest in fixed-income funds such as bonds, treasury bills, and money market instruments	Stocks and equity-related instruments	A mixture of both equity and debt instruments
Risk	Low to moderate	Moderate to high	Moderate
Potential Return	Stable returns but relatively lower	High returns over a long time but highly volatile	Balanced returns with a moderate risk
Suitable for	Conservative investors who prefer stable income	Investors with high risk tolerance seeking wealth building	Investors seeking a balance between both growth and stable income

Benefits and Risks of Debt Mutual Funds

The benefits of debt mutual funds are listed below.

1. Lower risk than equity funds: Investments in debt mutual funds mainly involve fixed-income instruments, including government securities, treasury bills, and corporate bonds. Therefore, they carry less risk than equity mutual funds.
2. Stable Income Capabilities: The objective of this fund is to provide steady income through interest and capital gains. Although returns are generally lower than equities, they tend to remain consistent even during market declines.
3. High Liquidity: Many debt funds enable investors to sell or redeem their investment before maturity during emergency monetary requirements, making them suitable for investors seeking short-term funds with fixed income.
4. Multiple Investment Options: There are several options for debt funds, such as liquid funds, money market funds, corporate bonds, gilt funds, and floating rate funds, which are available for investors to choose from.

The risks associated with debt mutual funds are listed below.

1. Interest Rate Risk: The price of debt funds depends on movements in market interest rates. When interest rates rise, existing bond prices may be negatively impacted, along with their potential returns.
2. Credit Risk: Debt funds can be exposed to the risk of default or delays in interest payments. This can reduce the fund’s value.
3. Market Risk: The funds are highly influenced by events in the economy, such as inflation rate,  movement in interest rates, and overall market conditions.
4. Inflation Risk: Although the returns earned may be stable and regular, they may fail to exceed the inflation rate and result in lower purchasing power.

Who Should Consider And Avoid Debt Mutual Funds?

Investors who should consider investing in debt mutual funds are given below.

1. Conservative Investors: Investors who prefer to protect their capital and expect stable returns can choose to invest in debt mutual funds. They prioritise stable income with a low risk degree.
2. Retirees: Investors who have retired and prefer stable, consistent returns at regular intervals can choose to invest in these funds. 
3. Short-term Planners: Investors with a short investment horizon can choose to invest in these funds, since it allows different categories to choose from, such as money market, government securities, and treasury bills within a short duration.

Investors who should avoid investing in debt mutual funds are listed.

1. High-growth Seekers: Investors who focus on creating wealth over time by investing in growth potential can avoid debt mutual funds. 
2. Risk-Tolerant Investors: Investors with a high risk tolerance and who are comfortable with market volatility can choose to avoid these funds.
3. Guaranteed-return Seekers: Investors focusing on guaranteed or fixed returns should avoid these funds, since returns on debt funds are market-linked and are not guaranteed.

How To Choose A Debt Mutual Fund?

Investors can choose a suitable fund by evaluating the fund’s necessary fundamentals and matching them with their investment goals.

1. Investment Horizon: Investors must understand the duration of the fund scheme and align their investment goals with it. Many debt funds, such as liquid and money market instruments, have a short duration, while corporate bonds and gilt funds have a long duration.

2. Historical Performance: Investors must analyse the fund’s past performance, which will provide an insight into its consistency and efficient management. It helps to understand how the fund performed under different market conditions.

3. Expense fees: Evaluate the charges associated with the fund for maintaining and managing its functions. It will provide an idea of net returns when compared to similar funds.

4. Fund manager: It is important to evaluate the fund manager’s past records because they are responsible for the selection and allocation of the funds. The fund manager’s capabilities can make an investment efficient.

5. Risk and returns: Evaluate the fund’s risk profile from the official document and also analyse past performance results. Align your risk tolerance with the fund’s risk profile. 

SIP vs Lump  Sum For Debt Funds

Investors can choose to invest in debt funds through both SIPs and Lump sums. Let’s understand which is more suitable for investors. 

Basis	SIPs	Lump sum
Meaning	Investing a fixed amount at regular intervals	Investing a large amount of capital at once
Suitable for	These are suitable for beginners and investors with regular incomes	These are best suited for investors with surplus money available
Risk	Relatively lower risk because of rupee cost averaging	Higher tax-saving market risk since it is exposed to the market
Returns	Steady returns over time, but might be lower in a steadily rising market	May generate high returns if invested during favourable prices

Direct vs Regular Debt Funds

Let’s understand the difference between direct and regular debt funds.

Basis	Direct Debt Funds	Regular Debt Funds
Meaning	Directly purchasing from AMCs without any involvement of intermediaries	Purchased through brokerage platforms, banks, or distributors
Returns	Relatively higher returns due to lower cost	Relatively lower returns because of certain fees and charges
Suitable for	Investors comfortable with independent decision-making and investment management	Investors who seek expert guidance
Cost	Low investment cost because of no intermediaries	High cost because it involves distributors and intermediaries

Taxation of Debt Mutual Funds

Debt mutual funds invest in debt instruments, including corporate bonds, treasury bills, government securities, and money market instruments. The taxation of these funds is treated as capital gains before April 1, 2023. Any capital gains arising from the redemption of debt mutual funds under specified funds are referred to as short-term capital gains, irrespective of their holding period and are taxed as per the applicable income tax slab. 

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