10 Best Debt Mutual Funds

The goal of any investment is to make your money grow and equity mutual funds can definitely help you achieve this, but these investments often offer low liquidity. Thus, many of us are forced to park a certain amount of cash in savings bank accounts so that we can easily get hold of funds in case of an emergency.

Here is a list of 10 best debt mutual funds for conveniently segregated into 5 key categories of liquid, ultra short term, short term, accrual and dynamic funds:

Fund Name	1-year Return	3-year Returns	5-year Returns
ICICI Prudential Liquid Plan	6.81%	6.97%	7.43%
Nippon India Liquid Fund	6.94%	7.05%	7.49%
ICICI Prudential Savings Fund	9.02%	7.80%	8.34%
Franklin India Ultra Short Bond Fund	9.72%	8.87%	9.25%
Franklin India Low Duration Fund	5.81%	7.66%	8.65%
Aditya Birla Sun Life Short Term Fund	9.74%	7.50%	8.72%
Axis Strategic Bond Fund	7.81%	7.50%	8.74%
ICICI Prudential Corporate Bond Fund	10.22%	7.69%	8.53%
Aditya Birla Sun Life Dynamic Bond Fund	0.10%	2.14%	6.26%
Nippon India Dynamic Bond Fund	9.48%	5.69%	7.80%

{Data as on December 10, 2019 Source: Value Research}

Best Liquid Funds for Investment

These debt funds invest in money market instruments featuring a maturity period of 91 days or less. As a result of this short maturity term, these are considered to be the least risky of all debt fund investments. Some key investment routes for liquid funds include call money, government securities and treasury bills.

1. ICICI Prudential Liquid Plan

The ICICI Prudential Liquid Plan offers investors a very low risk yet lucrative route of investing idle cash and making it grow over time. Apart from the high degree of liquidity that this fund offers, the ROI provided by this debt fund over the past 5 years exceeds 6%, which indicates solid performance through the various bull and bear phases. The historical solid performance of this liquid fund is expected to continue in 2019.

2. Nippon India Liquid Fund

Nippon India Liquid Fund blends high liquidity with consistent returns and moderate levels of risk. To achieve this winning combination, this debt fund focuses its investments on MIBOR-linked instruments featuring daily put or call options, reverse repos, repos, call and cash investments. This strategy has held this liquid fund in good stead and with ROI exceeding 7% over the past 5 years making it one of the best debt funds in its category.

Best Ultra Short Term Funds 

This type of debt mutual fund can invest in instruments maturing in less than 91 days as in case of liquid funds, but can also choose to invest in market instruments that have residual maturities exceeding 1 year. Though considered by some to be a bit riskier than liquid funds, it remains among the top choices for a short term investment due to its higher returns as compared to liquid funds along with a high degree of liquidity.

3. ICICI Prudential Savings Fund

This debt fund is focused on generating consistent returns through investments made into money market and debt instruments of varying maturities. The investments of ICICI Prudential Savings Fund are chosen such that they maximize income while simultaneously providing an optimal balance of liquidity, safety and yield. As per current data, this debt fund has provided returns of 8.34% over the past 5 years and this strong performance is expected to continue in 2019.

4. Franklin India Ultra Short Bond Fund

The Franklin India Ultra Short Bond fund targets investments that provide an optimum balance between high levels of liquidity and regular income generation. To achieve this objective, this debt fund invests in a mix of money market and short term debt investment options. In the past 5 years, this fund has managed to provide returns of 9.25%, which makes it one of 2019’s best debt funds to invest in.

Best Short Term Funds

This debt fund is differentiated from the previous two based on the maximum maturity of the securities they invest in. The investments of a short term fund can feature a maturity period of up to 3 years, which makes it suitable for investors seeking to stay invested in a debt fund for longer time periods.

5. Franklin India Low Duration Fund

The Franklin India Low Duration Fund is aimed at providing consistent returns to its investors through investments made into a range of top-rated debt securities and domestic fixed-income investments. Over the past 5 years, the fund that performed consistently with annual returns recorded more than 8%, which is one of the key reasons it ranks high on the best debt funds list of 2019.

6. Aditya Birla Sun Life Short Term Fund

The Aditya Birla Sun Life Short Term Fund is among the few debt funds that actually aim to invest their entire portfolio in a range of money market and debt instruments. As a result, this debt fund features a higher level of liquidity among its peers, while ensuring a high degree of capital appreciation and generating regular income for its investors. With 5-year returns recorded at 8.72%, this debt fund remains a top contender for the best debt mutual fund of 2019.

Best Accrual Debt Funds

Accrual funds also known as credit opportunities funds focus on generating returns for the investor through interest income earned from the bonds this fund is invested in. Accrual Funds thus differ from the other types of debt funds as capital appreciation is not their investment focus unlike in case of the liquid, ultra short term and short term debt funds mentioned above.

7. Axis Strategic Bond Fund

The Axis Strategic Bond Fund is the leading accrual debt fund offered by Axis Mutual Fund AMC (Asset Management Company), one of India’s leading mutual fund houses. The fund is focused on optimizing returns on its investments through active management of a portfolio consisting of various money market investments and debt securities. The strong historic performance of this fund is evident from the 5-year returns offered by the fund, which is 8.74% and this makes it a top debt fund to consider investing in this year.

8. ICICI Prudential Corporate Bond Fund

This accrual debt fund is focused on providing consistent returns to its investors by investing in a wide array of money market investments as well as debt securities irrespective of their maturity date. By staying invested in securities with different maturities, the ICICI Prudential Corporate Bond Fund maintains a balance between liquidity, safety as well as the yield provided. Having provided consistent returns of over 8% during the previous 5 years, this debt fund is expected to remain one of the top-performing debt mutual funds in its category.

Best Dynamic Bond Funds

Dynamic funds draw their name from the fact that their portfolio is managed dynamically. This style of fund management provides these funds with higher-level flexibility as compared to other debt funds. It is expected that this strategy of fund investment may result in higher liquidity, capital appreciation and superior interest income while minimising the overall risk of the investment.

9. Aditya Birla Sun Life Dynamic Bond Fund

This decade-old debt mutual fund has distinguished itself over time by significantly and consistently outperforming both its benchmark as well as peers as evidenced by over 7% returns that it has posted. The Aditya Birla Sun Life Dynamic Bond Fund is currently believed to be maintaining a comparatively conservative portfolio position, which is expected to be one of the key factors driving its future performance in 2019 and beyond.

10. Nippon India Dynamic Bond Fund

The Nippon India Dynamic Bond Fund has historical performance records spanning over a decade, which place it at the top of a shortlist of debt funds that have generated consistent returns in even the most challenging market conditions. The year 2016 was one of the best years on record for this dynamic debt fund with ROI of over 11.5%, additionally, the 5-year performance record with solid returns offered by the fund exceeding 7% makes it a must-consider option. The strong previous performance through multiple market booms and busts make it one of the top debt mutual fund investment choices for 2020.