Best Debt Mutual Funds in India in 2023 and Their Taxation

Last Updated on Oct 1, 2023 by Anjali Chourasiya

Table of Contents

Best debt mutual funds in 2023 – Based on 5-yr CAGR

Name	Sub-Category	AUM (Rs. in cr.)	Expense Ratio (%)	CAGR 5Y (%)
Nippon India Nivesh Lakshya Fund	Long Duration Fund	6,348.08	0.30	9.23
Aditya Birla SL Medium Term Plan	Medium Duration Fund	1,890.60	0.87	9.02
DSP G-Sec Fund	Gilt – Short & Mid Term Fund	592.28	0.54	8.85
SBI Magnum Gilt Fund	Gilt – Short & Mid Term Fund	7,195.93	0.46	8.84
Bandhan G-Sec-Invest	Gilt – Short & Mid Term Fund	1,453.46	0.62	8.75
ICICI Pru Constant Maturity Gilt Fund	Gilt – Long Term Fund	2,195.83	0.23	8.67
Kotak Gilt Fund	Gilt – Short & Mid Term Fund	2,387.71	0.42	8.67
Kotak Gilt Fund-PF&Trust	Gilt – Short & Mid Term Fund	2,387.71	0.42	8.67
Edelweiss Government Securities Fund	Gilt – Short & Mid Term Fund	137.62	0.49	8.65
Bandhan G-Sec-Constant Maturity Plan	Gilt – Long Term Fund	302.98	0.29	8.62

Note: The list of debt mutual funds is derived from Tickertape Mutual Fund Screener and is as of 1st October 2023. The parameters used to curate the list are as follows:

Category: Debt
Plan: Growth
CAGR 5Y: Sort from highest to lowest

Top debt mutual funds – Based on low expense ratio

Name	Sub-Category	AUM (Rs. in cr.)	Expense Ratio (%)
Nippon India Inv-Qrtly-III	Debt – Interval Fund	42.6711	0.02
Aditya Birla SL Inv Inc-QS I	Debt – Interval Fund	69.3028	0.02
Nippon India Inv-Mthly-I	Debt – Interval Fund	4.1973	0.03
Franklin India Credit Risk Fund	Credit Risk Fund	0	0.04
Franklin India Dynamic Accrual Fund	Dynamic Bond Fund	0	0.04
Franklin India Low Duration Fund	Low Duration Fund	0	0.04
Franklin India ST Income Plan	Short Duration Fund	408.9495061	0.04
Axis Overnight Fund	Overnight Fund	8017.9014	0.05
Nippon India Inv-Qrtly-I	Debt – Interval Fund	2.736	0.05
Nippon India Inv-Annual-I	Debt – Interval Fund	15.7176	0.05

Note: The list of debt mutual funds is derived from Tickertape Mutual Fund Screener and is as of 1st October 2023. The parameters used to curate the list are as follows:

Category: Debt
Plan: Growth
Expense Ratio: Sort from lowest to highest

Less volatile debt funds in India (2023)

Name	Sub-Category	AUM (Rs. in cr.)	Expense Ratio (%)	Volatility (%)	3Y Avg Rolling Returns (%)
Bajaj Finserv Overnight Fund	Overnight Fund	71.51	0.08	0.01	0.00
Invesco India Overnight Fund	Overnight Fund	300.34	0.06	0.01	4.03
JM Overnight Fund	Overnight Fund	126.59	0.07	0.01	103.55
PGIM India Overnight Fund	Overnight Fund	90.50	0.11	0.01	4.07
Edelweiss Overnight Fund	Overnight Fund	818.23	0.11	0.01	4.02
LIC MF Overnight Fund	Overnight Fund	587.60	0.07	0.01	4.02
Baroda BNP Paribas Overnight Fund	Overnight Fund	677.18	0.09	0.01	4.03
Union Overnight Fund	Overnight Fund	302.87	0.08	0.01	4.00
Tata Overnight Fund	Overnight Fund	2646.28	0.06	0.01	4.02
Sundaram Overnight Fund	Overnight Fund	1278.68	0.09	0.01	3.99

Note: The list of debt mutual funds is derived from Tickertape Mutual Fund Screener and is as of 1st October 2023. The parameters used to curate the list are as follows:

Category: Debt
Plan: Growth
Volatility: Set to Low – Sort from lowest to highest.

The term debt doesn’t need an introduction; it means loan. Debt mutual funds are a scheme which pools money from investors. This money is used to purchase debentures or bonds issued by public, private or government entities. Hence, when you invest in debt mutual funds, you indirectly give these entities loans. As it majorly deals with debt instruments that earn a fixed interest rate, the risk is lower than equity mutual funds. Now that we have lists of debt mutual funds based on various parameters, let’s learn more about debt funds and their taxation.

Taxation on debt mutual funds

The debt mutual funds taxation is as follows:

STCG: If you sell your debt fund before 3 yr from the investment date, then Short-Term Capital Gain (STCG) tax is applicable. The gains will be added to your income and taxed as per your income tax slab.
LTCG: Before 1st April 2023, if you sell your debt fund 3 yr from the purchase date, as per the long-term capital gains tax (LTCG), it is taxed at 20% with indexation benefits and 10% without indexation benefits.

However, starting from 1st April 2023, there are new rules for how gains from debt funds are taxed. The special benefit called “indexation” for long-term gains won’t apply anymore. Instead, any profits will be added to the investor’s taxable income and taxed based on their regular tax rate.

For funds bought after April 1, 2023, it doesn’t matter how long you hold them – any gains will be treated as short-term. But if you have funds bought before 1st April 2023 and sell them after that date, you can still use the indexation benefit for long-term gains.

Indexation benefit is a benefit applied to your investment amount to tax your returns fairly, which factors in inflation. For example, if your fund generates a 10% return over 3-yr and the inflation in that period is 6%, you pay 20% tax on the difference between the return and inflation, i.e., 10-6 = 4%. Now the total tax is 4*20% = 0.8%, where you’ll be taxed for 10-0.8= 9.2% instead of 10% returns.

Equity funds vs debt funds

Equity and debt funds are two popular types of mutual funds. The difference between these funds is where the money is invested. Equity funds invest primarily in equity shares and related securities. While debt funds invest in debt securities.

Conclusion

Apart from debt funds, there are several other mutual fund types available in the market. Irrespective of the fund type, you need to understand your investment objective and risk appetite. Find the scheme that aligns with your objectives.

Use Tickertape Mutual Fund Screener to filter the best mutual funds in India based on 50+ filters. Not just that, using Tickertape’s Mutual Fund Portfolio, you can also keep an eye on the performance of the funds.

FAQs

What is a debt mutual fund?

As the name suggests, debt funds are one of the mutual fund schemes. These funds invest in fixed-income instruments like government and corporate bonds, money market instruments, corporate debt securities, etc. Debt funds are also known as Bond Funds or Fixed Income Funds.

What are the debt mutual funds returns?

The returns on the debt funds depend on the fund you choose. Similar to equity funds, the returns keep fluctuating on the debt mutual funds.

What are the types of debt mutual funds?

There are various types of debt mutual funds, which are as follows:

Floating Rate Fund
Banking and PSU Fund
Ultra Short Duration Fund
Medium Duration Fund
Fixed Maturity Plans
Money Market Fund
Overnight Fund
Credit Risk Fund
Dynamic Bond Fund
Liquid Fund
Corporate Bond Fund
Low Duration Fund
Gilt – Long Term Fund
Short Duration Fund
Sectoral Fund – Infrastructure (Debt)
Long Duration Fund
Gilt – Short and Mid Term Fund
Medium to Long Duration Fund
Debt – Interval Fund

How will the new debt fund tax rules impact investors?

The removal of the indexation benefit on long-term gains from debt funds means investors, especially those in the 20% and 30% tax brackets, will pay more in taxes. Also, choosing between debt schemes and bank deposits might be tricky with the new tax rules.