Mutual Funds

Top 10 Debt Mutual Funds of 2022

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A common way for individuals to build wealth is through mutual funds. Mutual funds have been appealing for reasons such as professional management, diversification, and more.

Nevertheless, many people think mutual funds are an unwise investment choice for them because of how risky they are. While some mutual funds have a higher-than-average risk profile, others, like debt funds, are known for their steady returns. In this article, we’ll discuss how these debt funds operate and the top debt mutual funds in India right now.

What is the Best Debt Mutual Fund?

A debt mutual fund is a type of mutual fund scheme that makes investments in fixed-income generating assets such as certificates of deposit, corporate bonds, treasury bills, commercial paper, and government securities that have lower risk and volatility. Bond Funds and Fixed Income Bonds are other common names for debt mutual funds.

This fund’s primary goal is to offer consistent and fixed interest returns during the investment period. After the predetermined loan tenure, the debt fund receives its principal returned. Investors receive returns in the form of the fixed interest the fund earns. A debt mutual fund chooses its assets depending on its credit rating. A better credit rating increases the likelihood that the investment will be repaid in full when it matures and that the interest will be paid on time.

Top 10 mutual funds to invest this year

Debt funds are a smart investment, but to achieve your financial objectives, you still need to pick the best debt fund. In this article, we will give you a sneak peek at the top debt funds for 2022 to assist you in making your decision.

S. NoMutual FundAUMExpense Ratio3-Year Return5-Year Return
1.Aditya Birla Sun Life Medium Term Direct Plan-GrowthRs. 1,628 crores0.87%10.32%8.42%
2.UTI Bond Fund Direct-GrowthRs. 299 crores1.29%10.50%6.49%
3.ICICI Prudential Credit Risk Fund Direct Plan-GrowthRs. 8,014 crores0.88%8.14%8.03%
4.UTI Banking & PSU Debt Fund Direct-GrowthRs. 465 crores0.24%7.93%6.51%
5.Edelweiss Government Securities Fund Direct-GrowthRs. 109 crores0.69%7.08%7.95%
6.Edelweiss Banking and PSU Debt Fund Direct-GrowthRs. 379 crores0.28%7.38%7.87%
7.SBI Magnum Medium Duration Fund Direct-GrowthRs. 9,245 crores0.68%7.41%7.70%
8.Nippon India Ultra Short Duration Fund Direct-GrowthRs. 4,931 crores0.33%6.64%5.93%
9.ICICI Prudential Short Term Fund Direct Plan-GrowthRs. 15,615 crores0.37%6.13%7.30%
10.ICICI Prudential Ultra Short-Term Fund Direct-GrowthRs. 14,808 crores0.39%5.04%6.06%

Advantages of debt mutual funds

Debt funds have many significant advantages compared to some other mutual funds. Some of these advantages are:

Less affected by market movements

The result of debt mutual funds is not much affected by changes in the market. As a result, these funds are less volatile than equity funds. Fixed-income securities make up most of the portfolios of debt funds.

Predictable returns

Debt mutual fund returns are substantially more stable because the fund invests in fixed-income securities. Top debt funds are known for producing steady returns of 4% to 6%. Risk-averse investors should therefore think about investing in these funds.

Funds flexibility

When you invest in a debt fund, you might get a lot for the price of one, just as with other mutual funds. A typical debt fund may invest in several bonds, commercial paper, and other securities.

Also, debt mutual funds can be converted or transferred to equity mutual funds or any other plan of the investor’s choice. Other investment alternatives do not offer such options. For example, Fixed Deposits can be closed but not transferred.

Low-cost investment

Debt funds are inexpensive investment vehicles and they make more sense when you consider the instruments they invest in and the consistent returns they produce. Thus, debt funds charge a small investment cost. However, the expense ratio for most debt funds is less than 1%.

Who should invest in debt funds

Debt funds are best for novice investors to begin their financial adventures. They get the much-needed preview of mutual funds’ potential from this. Also, risk-averse people or those who aren’t ready for equity exposure should choose debt funds. Debt funds increase investors’ wealth and offer consistent income while posing minimal or no risk.

Tips to choose the best debt mutual fund

Fund history

Select investment fund providers with a proven track record of reliable performance. Make sure they have a consistent history going back at least five to ten years.

Track record

Over a 3-year and 5-year horizon, if the fund consistently beats its peers and the benchmark, it is a sign that a fund is well-managed. Although previous performance cannot predict future results, it is a crucial indicator of the fund’s history and aids in comparison to its competitors.

Expense ratio

The expense ratio displays the percentage of the money used to manage the fund. Better returns result from a reduced spending ratio. Choose the fund with the lower expense ratio.

Asset allocation

Also, consider how well-diversified your fund’s portfolio is and where they have made the majority of its investments. For higher returns, some funds may invest in riskier debt instruments, while others may invest in safer sectors like government bonds. Your potential for risk and return depends on the asset allocation strategy you like.

Asset under management

A larger fund size requires more management effort, and a smaller fund size offers less flexibility. The assets being managed shouldn’t be extremely high or extremely low. It enables the fund manager to quickly manoeuvre through stormy times and liquidate investments.

Things to consider before investing

Investment period and objective

To invest for a longer period, a person should consider investing in short-term bond funds. A holding period of three to twelve months is appropriate for liquid funds. Additionally, an investor must decide on the overall goal of his investment before choosing a debt fund.

Fund types

Further subcategories of debt funds include liquid funds, monthly income plans (MIPs), fixed maturity plans (FMPs), dynamic bond funds, income funds, etc. These funds have their own set of benefits and goals to pursue. You must determine your needs before investing in a debt fund.


Debt funds are ultimately market-linked and subject to credit and interest rate concerns. You must determine as an investor if you can deal with these risks.


The expense ratio is a fee charged by the fund houses in exchange for the fund manager’s upkeep of the fund. When compared to other funds in the category, an investor must select the fund with the lowest expense ratio.


Debt investing is a wise choice if you want consistent and secure profits. It is obvious from the information above that investing in debt funds will increase the security of your money. It is important to understand the risk and keep an eye on it, especially if you are investing in debt funds for a long time because debt funds are also market-linked.

In case of any doubt, consult a financial expert like Piramal Finance. Get easy and customised mutual fund and personal loan solutions at your fingertips.