Best Fixed Income Mutual Funds in India for 2026

Summary
Fixed income mutual funds invest in debt instruments to provide relatively stable returns while preserving capital.

Choosing the right fund depends on its category, performance, costs, investment horizon and financial goals.

Understanding the benefits, risks and taxation of fixed income funds helps investors make informed decisions.

Fixed income mutual funds invest your money in government bonds, corporate debt and money market instruments to generate steady interest income. Unlike equity funds, they do not chase stock price growth. Instead, they focus on capital protection and provide predictable returns. Let’s move ahead and look at ten funds worth your attention in 2026.

Best 10 Fixed Income Mutual Funds: Quick Comparison

These mutual fund schemes lead the category on scale, consistency and cost efficiency, a natural starting point for parking surplus cash or building a short-term corpus. The table below compares them using the latest data as of 5 August 2026.

Fund Name	Category	AUM (in ₹ cr)	3Y CAGR (%)	5Y CAGR (%)	Benchmark 3Y Return	Expense Ratio (%)	Minimum SIP (₹)	Risk
SBI Liquid Fund	Debt/ Liquid	71,448	6.93	6.24	6.93	0.17	500	Moderate
HDFC Liquid Fund	Debt/ Liquid	65,878	6.95	6.25	5.99 (Average YTM)	0.17	100	Low to Moderate
Aditya Birla Sun Life Liquid Fund	Debt/ Liquid	63,687	7.03	6.34	6.93	0.18	100	Moderate
ICICI Prudential Liquid Fund	Debt/ Liquid	54,543	6.96	6.26	5.99 (Average YTM)	0.17	99	Low to Moderate
Axis Liquid Fund	Debt/ Liquid	44,866	7.02	6.32	6.93	0.10	100	Low to Moderate
Nippon India Liquid Fund	Debt/ Liquid	35,870	7.00	6.30	6.93	0.17	100	Moderate
SBI Savings Fund	Debt/ Money Market	33,005	7.32	6.58	6.39 (Average YTM)	0.22	500	Low to Moderate
Tata Money Market Fund	Debt/ Money Market	32,150	7.53	6.77	6.39 (Average YTM)	0.15	500	Moderate
ICICI Prudential Money Market Fund	Debt/ Money Market	31,085	7.37	6.61	7.14	0.18	100	Low to Moderate
SBI Overnight Fund	Debt/Overnight	26,839	6.10	5.63	5.03 (Average YTM)	0.07	500	Low

Note: This list is intended for informational use only and does not constitute investment advice.

The funds in this list track the following benchmark indices:

• SBI Liquid Fund, Aditya Birla Sun Life Liquid Fund, Axis Liquid Fund and Nippon India Liquid Fund track the NIFTY Liquid Index A-I. 
• HDFC Liquid Fund and ICICI Prudential Liquid Fund use the CRISIL Liquid Debt A-I Index. 
• SBI Savings Fund and Tata Money Market Fund are benchmarked against the CRISIL Money Market A-I Index
• ICICI Prudential Money Market Fund tracks the NIFTY Money Market Index A-I. 
• SBI Overnight Fund follows the CRISIL Liquid Overnight Index.

Top 10 Fixed Income Mutual Funds in India

While these funds belong to the fixed income category, they are not identical. Their portfolios, investment strategies and historical performance vary, making it important to evaluate each scheme individually before investing.

1. SBI Liquid Fund

SBI Liquid Fund has delivered a 3-year CAGR of 6.93%, in line with the NIFTY Liquid Index A-I, while its 5-year CAGR stands at 6.24%. The fund invests mainly in debt and money market instruments with short maturities, helping keep interest-rate sensitivity low. It has a low expense ratio of 0.17%, and SIPs start at ₹500. It is a suitable option for parking surplus cash, though it should not be viewed as a substitute for a bank deposit.

2. HDFC Liquid Fund

HDFC Liquid Fund has delivered a 3-year CAGR of 6.95% and a 5-year CAGR of 6.25%. These returns are well ahead of the average YTM of its benchmark, the CRISIL Liquid Debt A-I Index. The fund has a competitive 0.17% expense ratio, while SIPs start at ₹100. This fund can be a good option for conservative investors seeking short-term stability.

3. Aditya Birla Sun Life Liquid Fund

Aditya Birla Sun Life Liquid Fund has delivered a 3-year CAGR of 7.03% and a 5-year CAGR of 6.34%, slightly outperforming its benchmark over three years. It charges an expense ratio of 0.18%. Investors can start with an SIP of ₹100. The consistent performance reflects its strength, but the moderate risk profile means attention should be paid to the credit quality of its portfolio.

4. ICICI Prudential Liquid Fund

ICICI Prudential Liquid Fund has delivered a 3-year CAGR of 6.96% and a 5-year CAGR of 6.26%, outperforming the average YTM of its benchmark. The expense ratio is 0.17%, and SIPs can be started with just ₹99, making it accessible to most investors. It is well suited to investors seeking a low-risk option for short-term savings and emergency funds.

5. Axis Liquid Fund

Axis Liquid Fund has delivered a 3-year CAGR of 7.02% and a 5-year CAGR of 6.32%, marginally outperforming the NIFTY Liquid Index A-I over three years. The portfolio is limited to securities maturing within 91 days, helping contain duration risk. It manages ₹44,866 crore and stands out with the lowest expense ratio in the list at just 0.10%. SIPs begin at ₹100. Low costs are one of its biggest strengths, although investors should remember that even low-to-moderate risk funds are not entirely risk-free.

6. Nippon India Liquid Fund

Nippon India Liquid Fund has posted a 7.00% CAGR over three years and 6.30% over five years, edging past the NIFTY Liquid Index A-I benchmark. The fund sticks to debt and money market instruments maturing within three months, which keeps liquidity high and limits how much interest rate movements can impact returns. The expense ratio is 0.17%, and SIPs start from ₹100. The fund’s consistency is its key strength. That said, investors should look past the returns and evaluate the credit quality of its portfolio.

7. SBI Savings Fund

SBI Savings Fund invests in money market instruments with maturities of up to one year, giving it the potential to generate higher returns than a typical liquid fund. It has delivered a 3-year CAGR of 7.32% and a 5-year CAGR of 6.58%. The fund charges 0.22%, and SIPs start at ₹500. It is well suited to investors who are comfortable taking slightly higher risk in pursuit of better returns.

8. Tata Money Market Fund

Tata Money Market Fund has generated very strong returns, with a 3-year CAGR of 7.53% and a 5-year CAGR of 6.77%. It has a 0.15% expense ratio, and the minimum SIP is ₹500. Its strong long-term performance and lower cost make it a suitable choice for investors with a short- to medium-term investment horizon.

9. ICICI Prudential Money Market Fund

ICICI Prudential Money Market Fund has delivered a 3-year CAGR of 7.37% and a 5-year CAGR of 6.61%. The fund invests in money market instruments with maturities of up to one year. It charges a 0.18% expense ratio, and the minimum SIP amount is ₹100. Its consistent returns and low minimum investment make it a good fit for investors looking to earn relatively stable returns over a few months to a year.

10. SBI Overnight Fund

SBI Overnight Fund invests only in securities maturing in one business day, making it the most conservative scheme in this list. It has delivered a 3-year CAGR of 6.10% and a 5-year CAGR of 5.63%, ahead of the CRISIL Liquid Overnight Index over three years. The fund manages ₹26,839 crore and has the lowest expense ratio in the comparison at just 0.07%. SIPs begin at ₹500. Its very short maturity keeps risk low, although that also limits its long-term return potential.

How We Selected These Fixed Income Funds

These mutual funds were shortlisted based on the following factors:

• Assets under management (AUM)

Larger funds generally offer better liquidity and operational stability, making AUM an important screening criterion.

• Historical performance 

CAGR over three and five years was reviewed to assess consistency across different market conditions rather than short-term outperformance.

• Risk profile

Each fund’s stated risk level and maturity were reviewed so the list spans overnight, liquid and money market options.

• Cost efficiency

Since fixed income funds typically generate modest returns, lower expense ratios can make a meaningful difference to long-term net returns.

Fixed Income Funds vs Other Fund Categories

Here is how fixed income funds compare against other fund types:

Parameter	Fixed Income Funds	Equity Funds	Hybrid Funds
Primary holding	Bonds and money market paper	Company shares	Mix of equity and debt
Risk level	Low to moderate	High	Moderate
Return potential	Modest and steady	High but variable	Balanced
Ideal investment horizon	Days to a few years	Five years and above	Three to five years

• Primary holding

Fixed income funds invest mainly in bonds and money market instruments. Equity funds invest in company shares, while hybrid funds combine both asset classes.

• Risk level

Fixed income funds generally have low to moderate risk, equity funds carry higher market risk, and hybrid funds fall somewhere in between.

• Return potential

Fixed income funds aim for steady returns. Equity funds can grow faster, but with more ups and downs along the way. Hybrid funds try to strike a balance between the two.

• Ideal investment horizon

Fixed income funds are best suited for short-term goals. Equity funds are better suited to long-term investing. Hybrid funds can work well for medium-term financial goals.

Benefits and Risks of Fixed Income Mutual Funds

The advantages of fixed income funds are as follows:

• Capital preservation: These funds prioritise protecting invested capital over chasing high growth.
• Liquidity: Most fixed income schemes let you redeem within a day or two. This gives investors flexibility with their funds.
• Diversification: The holdings are spread across issuers, which means a default from a single one of them cannot drag down the whole portfolio.

Investors should also be aware of these risks:

• Interest rate risk: Bond prices move inversely to interest rates, so rising rates can dent returns on longer holdings.
• Credit risk: A downgrade or default by an issuer can affect the fund’s net asset value.
• Liquidity risk: Thin secondary markets for some bonds can make them hard to sell without a price cut during stressed conditions.

Who Should Consider and Avoid Fixed Income Funds?

These funds suit certain investors better than others.

Consider these funds if you:

• Need a place to park surplus cash short term
• Want steadier returns than equity markets offer
• Are building an emergency fund with quick access

Avoid or limit your exposure if you:

• Are chasing high growth over a long horizon
• Have a low tolerance for fluctuation in returns
• Already hold enough fixed deposits and want equity diversification

How to Choose a Fixed Income Mutual Fund

Selecting the right fixed income fund depends on the following factors:

1. Check the benchmark and category

Every fund follows a benchmark index, so comparing returns against it gives a fairer picture than viewing them in isolation.

2. Reviewing the expense ratio

Since returns here are modest, even a small difference in expense ratio compounds meaningfully.

3. Assess portfolio maturity

Longer average maturity carries more rate sensitivity, which matters if you may need the money soon.

4. Looking at the fund house

An established house with a stable team generally reduces operational risk.

5. Matching the horizon to your goal

Overnight and liquid funds suit very short goals. Money market funds fit a slightly longer horizon.

SIP vs Lump Sum for Fixed Income Funds

Fixed income funds can be invested in through either SIPs or lump sum investments.

In a Systematic Investment Plan (SIP), your investments are spread over time, which reduces the need to perfectly time the market. While fixed income funds usually see limited day-to-day price movements, regular investments can still help build a corpus steadily without requiring a large upfront commitment.

A lump sum investment works well when you have surplus cash ready to invest. Since fixed income funds tend to be relatively stable, your money starts earning returns immediately, making this approach suitable for short-term cash parking.

Direct vs Regular Fixed Income Funds

Direct and regular plans invest in the same portfolio and are managed by the same fund manager. The main difference is their cost.

Direct plans do not include distributor commissions, resulting in lower expense ratios and higher returns over time. However, investors need to choose and manage their investments independently.

Regular plans are bought through distributors or financial advisors. Since their fees are included in the expense ratio, they cost slightly more but also come with investment guidance and support.

Taxation of Fixed Income Mutual Funds

The tax treatment of these funds depends on when the units were purchased.

For units purchased on or after 1 April 2023, all gains on redemption are treated as short-term capital gains, irrespective of the holding period. They are added to the total income and taxed at your applicable income-tax slab rate.

For units bought before 1 April 2023, gains can still qualify as long-term capital gains if the holding period exceeds 24 months. They are taxed at 12.5% without the indexation benefit.

IDCW (dividend) payouts are taxable in your hands at slab rates, and TDS at 10% is applied under Section 194K if IDCW from a particular mutual fund scheme to a resident investor exceeds ₹10,000 in a financial year.

Final Thoughts

Fixed income mutual funds work well for investors who want relatively stable, predictable returns. The categories covered above give you room to pick a scheme that fits your risk appetite and financial goals. 

Before investing, weigh your investment horizon and liquidity needs, and check the expense ratio and tax implications closely. A well-chosen fund can add balance to your portfolio.

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