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Top 6 Tips to Choose Best Debt Mutual Funds to Invest

Updated on September 18, 2025 , 7970 views

A mutual fund can bring overall value to your Portfolio, if chosen properly. When it comes to debt funds, these are the funds most preferred by investors who have an average risk appetite and those who want to earn optimal returns in a short duration. These funds mainly invest in fixed Income instruments like Government securities, Treasury bills, Corporate Bonds, etc. As debt funds invest in government securities these are less risky compared to equities. Investors planning to invest in the Best Debt Funds should evaluate certain important aspects that helps in determining the ability of that particular fund and its performance. Let's check these parameters.

Parameters to Pick the Best Debt Fund

In order to select the best debt funds you wish to invest in, it is necessary to consider some of the important parameters such as average maturity, credit quality, AUM, expense ratio, etc. Let's have an in-depth look-

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Average Maturity/Duration

Average maturity is an essential parameter in debt funds that is sometimes overlooked by investors, who tend to invest for a long period without considering the risks involved. Investors need to decide their Debt fund investment based on its maturity period, Matching the time period of investment with the maturity period of the debt fund is a good way to ensure you don't end up taking unnecessary risk. Thus, it is advisable to know the average maturity of a debt fund, before Investing, in order to aim for optimum risk returns in debt funds. Looking at the average maturity (duration is a similar Factor) is important, for example, a liquid fund may have an average maturity of a couple of days to maybe a month, this would mean it is a great option for an investor who is looking to invest money for a couple of days. Similarly, if you are looking at the time frame of one-year Investment plan then, a short-term debt fund can be ideal.

Interest Rate Scenario

Understanding the Market environment is very important in debt funds which are affected by interest rates and its fluctuations. When the interest rate rises in the Economy, the bond price falls and vice-versa. Also, during the time when the interest rates rise, new bonds are issued in the market with a higher yield than the older bonds, making those older bonds of lower value. Therefore, investors are more attracted towards newer bonds in the market and also a re-pricing of older bonds takes place. In case a debt fund is having an exposure to such "older bonds" then when the interest rates rise, the NAV of the debt fund would be impacted negatively. Furthermore, as debt funds are exposed to interest rate fluctuations, it disturbs the prices of the Underlying bonds in the fund portfolio. For instance, long-term debt funds are at a higher risk during times of rising interest rates. During this time making a short-term investment plan will lower your interest rate risks.

If one has good knowledge of interest rates and can monitor the same, one can even take advantage of this. In a falling interest rate market, long-term debt funds would be a good choice. However, during the times of rising interest rates then it would be wise to be in funds with shorter average maturities like short-term funds, ultra short term funds or even Liquid Funds.

Current Yield or Portfolio Yield

The yield is a measure of the interest income generated by the bonds in the portfolio. Funds that invest in debt or bonds that have a higher coupon rate (or yield) would have a higher overall portfolio yield. The yield to maturity (ytm) of a debt mutual fund indicates the running yield of the fund. When comparing debt funds on the Basis of YTM, one should also look at that fact that how is the extra yield being generated. Is this at the cost of as lower portfolio quality? Investing in not so good quality instruments has its own issues. You don't want to end up investing in a debt fund which has such bonds or securities that may Default later on. So, always look at the portfolio yield and balance it off with the credit quality.

Credit Quality of Portfolio

In order to invest in best debt funds, checking the credit quality of the bonds and debt securities is an essential parameter. Bonds are assigned a credit rating by various agencies based on their ability to pay the money back. A bond with AAA rating is considered to be the best credit rating and also implies a safe and secure investment. If one truly wants safety and considers this as the paramount parameter in selecting the best debt fund, then getting into a fund with very high-quality debt instruments (AAA or AA+) may be the desired option.

Assets Under Management (AUM)

This is the foremost parameter to consider while choosing the best debt funds. AUM is the total amount invested in a particular scheme by all investors. Since, most Mutual Funds’ total AUM is invested in debt funds, investors need to select scheme assets that have a considerable AUM. Being in a fund which has a large exposure to corporates may be risky, since their withdrawals may be large which may affect the overall fund performance.

Expense Ratio

An important factor to be considered in debt funds is its expense ratio. A higher expense ratio creates a larger impact on the funds’ performance. For example, liquid funds have the lowest expense ratios which are up to 50 bps (BPS is a unit to measure interest rates wherein one bps is equal to 1/100th of 1%) whereas, other debt funds could charge up to 150 bps. So to make a choice between one debt mutual fund, it is important to consider the Management Fee or the fund running expense.

Best Debt Funds to Invest in 2025

Considering the above parameters we have shortlisted some of the best performing debt funds to invest.

FundNAVNet Assets (Cr)3 MO (%)6 MO (%)1 YR (%)3 YR (%)2024 (%)Debt Yield (YTM)Mod. DurationEff. Maturity
Axis Credit Risk Fund Growth ₹21.7827
↑ 0.01
₹3661.74.88.57.787.93%2Y 3M 18D2Y 9M 4D
PGIM India Credit Risk Fund Growth ₹15.5876
↑ 0.00
₹390.64.48.43 5.01%6M 14D7M 2D
UTI Banking & PSU Debt Fund Growth ₹22.2572
↑ 0.01
₹8131.34.58.17.37.66.61%1Y 8M 12D1Y 11M 8D
Aditya Birla Sun Life Savings Fund Growth ₹556.548
↑ 0.06
₹21,5211.647.97.47.96.76%5M 8D6M 11D
Aditya Birla Sun Life Money Manager Fund Growth ₹375.822
↑ 0.06
₹27,6651.547.87.67.86.24%5M 12D5M 12D
HDFC Corporate Bond Fund Growth ₹32.8937
↑ 0.00
₹35,7000.84.17.77.68.67.06%4Y 2M 1D4Y 4M 28D
Aditya Birla Sun Life Corporate Bond Fund Growth ₹114.065
↑ 0.03
₹28,1090.83.97.67.78.57.21%4Y 8M 8D7Y 3M
ICICI Prudential Long Term Plan Growth ₹37.3235
↑ 0.04
₹14,9050.93.87.67.78.27.64%4Y 9M 4D12Y 7M 10D
HDFC Banking and PSU Debt Fund Growth ₹23.2547
↓ -0.01
₹5,8900.84.27.67.37.96.94%3Y 5M 5D4Y 11M 19D
Indiabulls Liquid Fund Growth ₹2,557.04
↑ 0.42
₹3031.43.36.96.97.45.88%1M 3D1M 3D
Note: Returns up to 1 year are on absolute basis & more than 1 year are on CAGR basis. as on 19 Sep 25

Research Highlights & Commentary of 10 Funds showcased

CommentaryAxis Credit Risk Fund PGIM India Credit Risk FundUTI Banking & PSU Debt FundAditya Birla Sun Life Savings FundAditya Birla Sun Life Money Manager FundHDFC Corporate Bond FundAditya Birla Sun Life Corporate Bond FundICICI Prudential Long Term PlanHDFC Banking and PSU Debt FundIndiabulls Liquid Fund
Point 1Bottom quartile AUM (₹366 Cr).Bottom quartile AUM (₹39 Cr).Lower mid AUM (₹813 Cr).Upper mid AUM (₹21,521 Cr).Upper mid AUM (₹27,665 Cr).Highest AUM (₹35,700 Cr).Top quartile AUM (₹28,109 Cr).Upper mid AUM (₹14,905 Cr).Lower mid AUM (₹5,890 Cr).Bottom quartile AUM (₹303 Cr).
Point 2Established history (11+ yrs).Established history (10+ yrs).Established history (11+ yrs).Established history (22+ yrs).Established history (19+ yrs).Established history (15+ yrs).Oldest track record among peers (28 yrs).Established history (15+ yrs).Established history (11+ yrs).Established history (13+ yrs).
Point 3Top rated.Rating: 5★ (top quartile).Rating: 5★ (upper mid).Rating: 5★ (upper mid).Rating: 5★ (upper mid).Rating: 5★ (lower mid).Rating: 5★ (lower mid).Rating: 5★ (bottom quartile).Rating: 5★ (bottom quartile).Rating: 5★ (bottom quartile).
Point 4Risk profile: Moderate.Risk profile: Moderate.Risk profile: Moderate.Risk profile: Moderately Low.Risk profile: Low.Risk profile: Moderately Low.Risk profile: Moderately Low.Risk profile: Moderate.Risk profile: Moderately Low.Risk profile: Low.
Point 51Y return: 8.53% (top quartile).1Y return: 8.43% (top quartile).1Y return: 8.06% (upper mid).1Y return: 7.88% (upper mid).1Y return: 7.79% (upper mid).1Y return: 7.66% (lower mid).1Y return: 7.61% (lower mid).1Y return: 7.59% (bottom quartile).1Y return: 7.56% (bottom quartile).1Y return: 6.90% (bottom quartile).
Point 61M return: 0.64% (top quartile).1M return: 0.27% (bottom quartile).1M return: 0.50% (upper mid).1M return: 0.48% (upper mid).1M return: 0.47% (lower mid).1M return: 0.42% (bottom quartile).1M return: 0.50% (upper mid).1M return: 0.59% (top quartile).1M return: 0.33% (bottom quartile).1M return: 0.48% (lower mid).
Point 7Sharpe: 2.16 (upper mid).Sharpe: 1.73 (upper mid).Sharpe: 1.46 (lower mid).Sharpe: 3.66 (top quartile).Sharpe: 3.32 (upper mid).Sharpe: 0.68 (bottom quartile).Sharpe: 0.66 (bottom quartile).Sharpe: 0.47 (bottom quartile).Sharpe: 0.73 (lower mid).Sharpe: 3.54 (top quartile).
Point 8Information ratio: 0.00 (top quartile).Information ratio: 0.00 (top quartile).Information ratio: 0.00 (upper mid).Information ratio: 0.00 (upper mid).Information ratio: 0.00 (upper mid).Information ratio: 0.00 (lower mid).Information ratio: 0.00 (lower mid).Information ratio: 0.00 (bottom quartile).Information ratio: 0.00 (bottom quartile).Information ratio: -1.18 (bottom quartile).
Point 9Yield to maturity (debt): 7.93% (top quartile).Yield to maturity (debt): 5.01% (bottom quartile).Yield to maturity (debt): 6.61% (lower mid).Yield to maturity (debt): 6.76% (lower mid).Yield to maturity (debt): 6.24% (bottom quartile).Yield to maturity (debt): 7.06% (upper mid).Yield to maturity (debt): 7.21% (upper mid).Yield to maturity (debt): 7.64% (top quartile).Yield to maturity (debt): 6.94% (upper mid).Yield to maturity (debt): 5.88% (bottom quartile).
Point 10Modified duration: 2.30 yrs (lower mid).Modified duration: 0.54 yrs (upper mid).Modified duration: 1.70 yrs (upper mid).Modified duration: 0.44 yrs (top quartile).Modified duration: 0.45 yrs (upper mid).Modified duration: 4.17 yrs (bottom quartile).Modified duration: 4.69 yrs (bottom quartile).Modified duration: 4.76 yrs (bottom quartile).Modified duration: 3.43 yrs (lower mid).Modified duration: 0.09 yrs (top quartile).

Axis Credit Risk Fund

  • Bottom quartile AUM (₹366 Cr).
  • Established history (11+ yrs).
  • Top rated.
  • Risk profile: Moderate.
  • 1Y return: 8.53% (top quartile).
  • 1M return: 0.64% (top quartile).
  • Sharpe: 2.16 (upper mid).
  • Information ratio: 0.00 (top quartile).
  • Yield to maturity (debt): 7.93% (top quartile).
  • Modified duration: 2.30 yrs (lower mid).

PGIM India Credit Risk Fund

  • Bottom quartile AUM (₹39 Cr).
  • Established history (10+ yrs).
  • Rating: 5★ (top quartile).
  • Risk profile: Moderate.
  • 1Y return: 8.43% (top quartile).
  • 1M return: 0.27% (bottom quartile).
  • Sharpe: 1.73 (upper mid).
  • Information ratio: 0.00 (top quartile).
  • Yield to maturity (debt): 5.01% (bottom quartile).
  • Modified duration: 0.54 yrs (upper mid).

UTI Banking & PSU Debt Fund

  • Lower mid AUM (₹813 Cr).
  • Established history (11+ yrs).
  • Rating: 5★ (upper mid).
  • Risk profile: Moderate.
  • 1Y return: 8.06% (upper mid).
  • 1M return: 0.50% (upper mid).
  • Sharpe: 1.46 (lower mid).
  • Information ratio: 0.00 (upper mid).
  • Yield to maturity (debt): 6.61% (lower mid).
  • Modified duration: 1.70 yrs (upper mid).

Aditya Birla Sun Life Savings Fund

  • Upper mid AUM (₹21,521 Cr).
  • Established history (22+ yrs).
  • Rating: 5★ (upper mid).
  • Risk profile: Moderately Low.
  • 1Y return: 7.88% (upper mid).
  • 1M return: 0.48% (upper mid).
  • Sharpe: 3.66 (top quartile).
  • Information ratio: 0.00 (upper mid).
  • Yield to maturity (debt): 6.76% (lower mid).
  • Modified duration: 0.44 yrs (top quartile).

Aditya Birla Sun Life Money Manager Fund

  • Upper mid AUM (₹27,665 Cr).
  • Established history (19+ yrs).
  • Rating: 5★ (upper mid).
  • Risk profile: Low.
  • 1Y return: 7.79% (upper mid).
  • 1M return: 0.47% (lower mid).
  • Sharpe: 3.32 (upper mid).
  • Information ratio: 0.00 (upper mid).
  • Yield to maturity (debt): 6.24% (bottom quartile).
  • Modified duration: 0.45 yrs (upper mid).

HDFC Corporate Bond Fund

  • Highest AUM (₹35,700 Cr).
  • Established history (15+ yrs).
  • Rating: 5★ (lower mid).
  • Risk profile: Moderately Low.
  • 1Y return: 7.66% (lower mid).
  • 1M return: 0.42% (bottom quartile).
  • Sharpe: 0.68 (bottom quartile).
  • Information ratio: 0.00 (lower mid).
  • Yield to maturity (debt): 7.06% (upper mid).
  • Modified duration: 4.17 yrs (bottom quartile).

Aditya Birla Sun Life Corporate Bond Fund

  • Top quartile AUM (₹28,109 Cr).
  • Oldest track record among peers (28 yrs).
  • Rating: 5★ (lower mid).
  • Risk profile: Moderately Low.
  • 1Y return: 7.61% (lower mid).
  • 1M return: 0.50% (upper mid).
  • Sharpe: 0.66 (bottom quartile).
  • Information ratio: 0.00 (lower mid).
  • Yield to maturity (debt): 7.21% (upper mid).
  • Modified duration: 4.69 yrs (bottom quartile).

ICICI Prudential Long Term Plan

  • Upper mid AUM (₹14,905 Cr).
  • Established history (15+ yrs).
  • Rating: 5★ (bottom quartile).
  • Risk profile: Moderate.
  • 1Y return: 7.59% (bottom quartile).
  • 1M return: 0.59% (top quartile).
  • Sharpe: 0.47 (bottom quartile).
  • Information ratio: 0.00 (bottom quartile).
  • Yield to maturity (debt): 7.64% (top quartile).
  • Modified duration: 4.76 yrs (bottom quartile).

HDFC Banking and PSU Debt Fund

  • Lower mid AUM (₹5,890 Cr).
  • Established history (11+ yrs).
  • Rating: 5★ (bottom quartile).
  • Risk profile: Moderately Low.
  • 1Y return: 7.56% (bottom quartile).
  • 1M return: 0.33% (bottom quartile).
  • Sharpe: 0.73 (lower mid).
  • Information ratio: 0.00 (bottom quartile).
  • Yield to maturity (debt): 6.94% (upper mid).
  • Modified duration: 3.43 yrs (lower mid).

Indiabulls Liquid Fund

  • Bottom quartile AUM (₹303 Cr).
  • Established history (13+ yrs).
  • Rating: 5★ (bottom quartile).
  • Risk profile: Low.
  • 1Y return: 6.90% (bottom quartile).
  • 1M return: 0.48% (lower mid).
  • Sharpe: 3.54 (top quartile).
  • Information ratio: -1.18 (bottom quartile).
  • Yield to maturity (debt): 5.88% (bottom quartile).
  • Modified duration: 0.09 yrs (top quartile).

Disclaimer:
All efforts have been made to ensure the information provided here is accurate. However, no guarantees are made regarding correctness of data. Please verify with scheme information document before making any investment.
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