Top Fixed Income Mutual Funds

For many Indian millennials at the peak of their careers, having extra funds seems distant. While limited salaries usually end up fulfilling personal needs and identifying the nature of inflation, savings seem challenging, especially when living in a metropolitan city. With limited savings in hand, choosing the right type of investment becomes crucial to building wealth opportunities for the future. Therefore, with Fixed-Income Mutual Funds, it is possible. Let’s learn how. 

List of Best Fixed Income Mutual Funds in India 

Let’s look at the best fixed income mutual funds you might want to invest in.

Fund Name	Sub-Category	AUM (Rs. in Cr)	CAGR 5Y (%)
Aditya Birla SL Medium Term Plan	Medium Duration Fund	1,981.28	12.02
Bank of India Credit Risk Fund	Credit Risk Fund	114.92	10.94
JM Low Duration Fund	Low Duration Fund	231.17	9.63
Aditya Birla SL Credit Risk Fund	Credit Risk Fund	933.02	9.21
Baroda BNP Paribas Credit Risk Fund	Credit Risk Fund	161.79	9.02
UTI Dynamic Bond Fund	Dynamic Bond Fund	560.42	9.00
Bank of India Short Term Income Fund	Short Duration Fund	71.70	8.88
DSP Credit Risk Fund	Credit Risk Fund	188.05	8.83
ICICI Pru Credit Risk Fund	Credit Risk Fund	6,387.09	8.07
UTI Short Duration Fund	Short Duration Fund	2,675.97	8.05

Disclaimer: Please note that the above table is for educational purposes only, and is not recommendatory. Please do your own research or consult your financial advisor before investing. The data is derived from Tickertape Stock Screener and is subject to real-time updates.

Note: The data on the top 10 fixed income mutual funds in India list is from 30th December 2024, and the data is derived from Tickertape Mutual Fund Screener, using the following parameters:

• Category: Debt
• Plan: Growth
• 5-yr CAGR: Sorted from highest to lowest

🚀 Pro Tip: You can use Tickertape’s Stock Screener to research and evaluate stocks with over 200+ filters and parameters.

Top Fixed Income Plans: An Overview

Aditya Birla SL Medium Term Plan

Aditya Birla Sun Life Medium Term Plan Direct-Growth is a Medium Duration mutual fund scheme. It is a medium-sized fund with an expense ratio of 0.85%. As of 30th December 2024, the fund had assets under management (AUM) worth Rs. 1,981.28 cr., and a NAV of Rs. 40.19. The fund has a 3-yr compounded annual growth rate (CAGR) of 14.54%, and a 5-yr CAGR of 12.02%.

Bank of India Credit Risk Fund

Bank of India Credit Risk Fund is an open-ended debt mutual fund managed by Bank of India Mutual Fund, a trusted name in India’s financial services sector. The fund was launched on 25th May 2015 and is managed by Alok Singh. As of 30th December 2024, the fund had an AUM worth Rs. 114.92 cr., and a NAV of Rs. 12.07. The fund has a 3-yr CAGR of 40.06%, and a 5-yr CAGR of 10.94%.

JM Low Duration Fund

JM Low Duration Fund is an open-ended debt mutual fund managed by JM Financial Asset Management Limited. Vikas Agarwal and Taranjit S. Hora currently manage the fund. As of 30th December 2024, the fund had an AUM worth Rs. 231.17 cr., and a NAV of Rs. 36.50. The fund has a 3-yr CAGR of 6.45% and a 5-yr CAGR of 9.63%.

Aditya Birla SL Credit Risk Fund

Aditya Birla Sun Life Credit Risk Fund is an open-ended debt mutual fund offered by Aditya Birla Sun Life AMC. The fund was launched on 23rd April 2014 and is managed by Pranay Sinha and Kaustubh Gupta. As of 30th December 2024, the fund had an AUM worth Rs. 933.02 cr., and a NAV of Rs. 22.36. The fund has a 3-yr CAGR of 9.52% and a 5-yr CAGR of 9.21%.

Baroda BNP Paribas Credit Risk Fund

Baroda BNP Paribas Credit Risk Fund is an open-ended debt mutual fund offered by Baroda BNP Paribas Asset Management India, a joint venture between Baroda Mutual Fund and BNP Paribas Asset Management. The fund was launched on 26th February 2013, and is managed by Prashant Jain. As of 30th December 2024, the fund had an AUM worth Rs. 161.79 cr., and a NAV of Rs. 23.26. The fund has a 3-yr CAGR of 7.57% and a 5-yr CAGR of 9.02%.

UTI Dynamic Bond Fund

UTI Dynamic Bond Fund is an open-ended debt mutual fund managed by UTI Asset Management Company. The fund was launched on December 30, 2003. As of 30th December 2024, the fund had an AUM worth Rs. 560.42 cr., an expense ratio of 0.67% and a NAV of Rs. 32.07. The fund has a 3-yr CAGR of 9.07% and a 5-yr CAGR of 9.00%.

Bank of India Short Term Income Fund

Bank of India Short Term Income Fund is an open-ended debt mutual fund offered by Bank of India Mutual Fund. The fund was launched on 1st March 2006, and Sandeep Kumar manages it. As of 30th December 2024, the fund had an AUM worth Rs. 71.70 cr., an expense ratio of 0.45% and a NAV of Rs. 27.81. The fund has a 3-yr CAGR of 14.13% and a 5-yr CAGR of 8.88%.

DSP Credit Risk Fund

DSP Credit Risk Fund is an open-ended debt mutual fund offered by DSP Investment Managers. The fund was launched on 9th November 2007 and is primarily managed by Jayesh Mehta and Sandeep Ghosh. As of 30th December 2024, the fund had an AUM worth Rs. 188.05 cr., an expense ratio of 0.40% and a NAV of Rs. 45.58. The fund has a 3-yr CAGR of 11.68% and a 5-yr CAGR of 8.83%.

ICICI Pru Credit Risk Fund

ICICI Pru Credit Risk Fund is an open-ended debt mutual fund offered by ICICI Prudential Asset Management Company. The fund was launched on 1st August 2007 and is managed by Rahul Goswami and Manish Banthia. As of 30th December 2024, the fund had an AUM worth Rs. 6,387.09 cr., an expense ratio of 0.76% and a NAV of Rs. 33.30. The fund has a 3-yr CAGR of 7.64% and a 5-yr CAGR of 8.07%.

UTI Short Duration Fund

UTI Short Duration Fund is an open-ended debt mutual fund offered by UTI Asset Management Company. The fund is managed by Vivek Agarwal and Rajeev Kumar. As of 30th December 2024, the fund had an AUM worth Rs. 2,675.97 cr., an expense ratio of 0.42% and a NAV of Rs. 32.23. The fund has a 3-yr CAGR of 6.78% and a 5-yr CAGR of 8.05%.

What are Fixed Income Mutual Funds?

Fixed income mutual funds or mutual fund debt funds, are investment avenue that primarily invests in fixed-income securities, such as government securities (G-Secs), corporate bonds, CDs, and other money market funds. Debt funds are relatively stable investment avenues, however, the income may not be a fixed amount as it depends upon the performance of the fund.

How Do Fixed Income Funds Work?

Fixed income mutual funds are designed to consistently boost the fund’s income through the interest earned on its holdings. Typically close-ended, these funds are available for subscription only during their New Fund Offer (NFO) period and come with a specified tenure and fixed maturity date. The funds raised remain locked within this tenure, ensuring efficient corpus management. Fund managers are crucial in selecting assets with optimal growth potential, benefiting from ample time to devise a suitable long-term investment strategy.

What are the Different Types of Fixed Income Funds?

Here is a list of types of best income funds available.

• Long-Term Debt Funds: These funds are invested in government securities and corporate debt, maturing in 5 or 10 years. They may be more affected by interest rate changes, witnessing capital depreciation in rate hikes and appreciation in rate cuts.
• Short-Term Debt Funds: These funds invest in short-term instruments like G-Secs, short-term corporate papers, and money market instruments. Their Net Asset Value (NAV) might be less susceptible to interest rate shifts.
• Credit Opportunities Fund: This fund assumes a slightly higher credit risk, including AA-rated bonds for higher yields. However, careful bond selection is crucial to mitigate default risks.
• Floating Rate Debt Fund-Short Term: These funds invest in short-term floating-rate instruments, where interest rates vary with benchmarks like MCLR or the Bank rate.
• Floating Rate Debt Fund—Long Term: This is an extension of short-term floating rate funds with a longer maturity, potentially performing well in rising rate environments.
• Ultra-Short Term Funds: Also known as Liquid-Plus Funds, these funds invest in short-term papers with a maturity of less than one year, enhancing yields by incorporating a small portion of long-term paper.
• Long-Term Gilt Funds: These are similar to short-term gilt funds but with a longer maturity period, making them more susceptible to interest rate changes.
• MIP Aggressive Funds: Monthly Income Plans with a higher equity exposure (25-30%) for capital growth, balancing stability with alpha.
• MIP Conservative Funds: Unlike MIP Aggressive funds, where the equity component can go up to 25-30%, a conservative MIP limits its equity exposure to approximately 5-10%.

Components of Fixed Income Funds

Fixed income funds are dependent on the style of investments and expected returns. Let’s look at each of the components of the fixed income mutual funds. 

• Debt Funds: Debt funds are fixed-income plans that primarily invest in relatively safer instruments such as government and corporate bonds, debentures, and other debt securities. The primary objective is to generate stable returns through interest income while maintaining a low-risk profile compared to equity investments.
• Money Market Funds: Money Market Funds are fixed income plans that invest in short-term, highly liquid instruments like treasury bills, commercial paper, short-term bank certificates of deposit (CDs), and banker’s acceptances. These funds are well-suited for short-term investments, typically up to 90 days, and are directly influenced by changes in interest rates.
• Exchange-Traded Funds: Exchange-traded funds (ETFs) are index funds traded on stock exchanges in the context of fixed-income plans. They mirror the performance of a specific index, such as Nifty, BSE Sensex, or S&P. ETFs provide investors with the flexibility to buy and sell shares in the cash market daily. Gold ETFs, a popular form of ETF, offer exposure to the performance of gold.

Features of Fixed Income Mutual Funds

Here is a list of features of fixed income mutual funds.

• Fixed income funds prioritise delivering a consistent income to investors rather than capital appreciation.
• This mutual fund type is suitable for investors who are looking for a steady return rather than increasing the value of their investment, especially retirees or those with a low-risk tolerance.
• Fixed-income funds are highly liquid, allowing investors to withdraw or redeem their funds whenever needed. This feature provides easy access to funds, enhancing the investor’s financial flexibility.
• Debt funds may provide better long-term returns than money market funds or CDs. However, ETFs can be slightly more profitable as they function similarly to equity funds.
• Fixed income mutual funds can be subject to the tax regulations applicable to debt funds. In practical terms, short-term capital gains are added to income and taxed according to the slab rate, while long-term capital gains incur a 10% tax without indexation and a 20% tax with indexation.

How to Invest in Fixed Income Mutual Funds?

You can easily invest in fixed income mutual funds by following these steps:

• To invest in mutual funds, you can visit an equity investment platform such as smallcase or Tickertape.
• The next step would be to research and identify the best fixed income funds which aligns with your investment thesis. You can easily select and learn more about the best fixed income funds with the help of a financial tool like the Tickertape Mutual Fund Screener. With 50+ pre-loaded filters, it helps you to create a comprehensive list by giving insights about the fund’s performance. Try it now!
• Once you have selected the funds based on different metrics and parameters, go to smallcase.com or the smallcase app, and login via your phone number. Click on ‘Discover‘ and enter the name of the specific mutual fund name in the search bar and hit enter. You can click on ‘invest now’ and select whether you want to invest a lump sum amount or start a SIP and start investing!

Who Should Invest in Fixed Income Bond Funds?

Fixed monthly income plan can be a good investment option for investors who wish to seek a stable source of returns rather than increasing their portfolio’s investment value, such as retirees.

Thus, the percentage of the portfolio dedicated to fixed income funds largely depends on risk tolerance and investment goals, which may differ. Investors can also apply a balanced approach by involving a mix of fixed-income products and stocks, creating a portfolio with, for instance, 50% in fixed-income products and 50% in stocks.

Factors to Consider Before Investing in Fixed Income Mutual Funds

Let’s consider the factors before investing in a mutual fund with regular income.

• Interest Rate Risk vs. Credit Risk: Understand that interest rate risk is typically temporary, fluctuating with market conditions, while credit risk can be more permanent. Consider your risk tolerance and investment horizon in managing these risks effectively.
• Know the Credit Quality of Your Scheme: You can evaluate the credit quality of the mutual fund scheme by reviewing the credit ratings assigned to the securities in its portfolio. Higher-rated securities can indicate lower credit risk.
• Keep Your Risk Appetite in Mind: Tailor your investment choices based on your risk appetite. Different fixed-income funds come with varying levels of risk, such as government bonds being lower risk than corporate bonds. Align your fund selection with your risk tolerance to ensure a suitable and comfortable investment experience.

Risks Involved While Investing in Fixed Income Mutual Funds

Before we discuss how to choose the right fixed income investment options, let’s understand the two main risk factors.

• Interest Rate Risk: It may impact the prices of fixed income securities, moving inversely to changes in interest rates. When rates rise, prices fall, and vice versa. Each fixed income instrument may exhibit varying sensitivity to interest rate changes, known as duration, with longer durations indicating higher sensitivity.
• Credit Risk: Involves the potential for default, where the issuer fails to meet interest or principal payments. Rating agencies assess credit risk based on the issuer’s financial strength and assign credit ratings to instruments. If an instrument’s credit rating is downgraded, its price decreases, while an upgrade leads to a price increase.

Benefits of Investing in Fixed Income Mutual Funds

Now that we have covered potential risks, it’s time to look at the benefits of fixed income mutual funds.

• Lower Volatility: Debt funds are generally less volatile than equities and offer greater stability. This makes them suitable for risk-averse investors seeking capital preservation.
• Good Returns: Debt mutual funds are fixed income options that can offer good returns by investing in bonds and other fixed-income securities. Thus, these funds invest in bonds and can earn interest income on these investments. 
• Diversification: They offer diversity within the fixed-income space, allowing you to invest in a variety of bonds (government, corporate, etc.) and reduce portfolio risk compared to individual bond selections.

How to Choose the Best Fixed Income Plan Mutual Funds for Investing?

When deciding which fixed-income debt funds to invest in, you can use a technique called fixed-income analysis. This method can help assess which investments align with the investor’s risk tolerance and expected returns.

Fixed income analysis may often begin with risk. Every investment exhibits a connection between its risk and return, implying that, under equal circumstances, returns might be higher when the best fixed income investments India are riskier. Consequently, fixed income analysis may not only evaluate whether an investor is at ease with the assumed risk but also whether the risk level aligns appropriately with the expected return of a fixed income security.

What are the Returns on Fixed Income Mutual Funds & How are They Calculated?

There are different ways to calculate return on a fixed return investment, depending on the specific period and desired perspective:

• Simple Annual Return: This considers only the total annual income divided by the initial investment.
• Internal Rate of Return (IRR): This reflects the discount rate at which the total cash flows (income and capital gain/loss) equal zero, providing a more comprehensive view of overall return.
• Modified Dietzler Yield: This calculates the annualized yield based on the current fund price and the remaining maturity of the underlying bonds.

However, when evaluating fixed income fund returns, it’s crucial to consider:

• Holding Period: Returns can vary significantly based on how long you hold the fund units.
• Expense Ratio: Fund fees impact net returns, so factor them into your calculations.
• Taxes: Tax implications can influence your realized return, depending on the type of fund and holding period.

Example of Fixed Income

Fixed-income securities are financial instruments that offer a fixed interest rate. These may encompass bonds issued by governments or corporations, certificates of deposit (CDs), money market funds, and commercial paper. Additionally, preferred stock is occasionally classified as fixed-income due to its hybrid nature, incorporating characteristics of both debt and equity securities.

Taxation on Fixed Income Mutual Funds as per the Union Budget 2024-25

The taxation on capital gains from your mutual fund investments is based on their holding periods and asset allocation. A few revisions were made to the tax rates, depending on their types, in the Union Budget 2024-25. It may be important to learn about these revisions when considering fixed income mutual funds, including the best bond mutual funds. These changes include:

Equity Mutual Funds

• Short-Term Capital Gains (STCG): The gains from equity mutual funds held for less than 12 months are now taxed at 20%. This is an increase from the previous tax rate of 15%.
• Long-Term Capital Gains (LTCG): For equity mutual funds held for over a period of over 12 months, gains are classified as long-term capital gains. The new budget introduces these key changes to the LTCG:

1. Tax-Free Limit: The capital gains up to Rs. 1.25 lakh per year are tax-free. This is an increase from the previous limit of Rs. 1 lakh.
2. Tax Rate: The gains exceeding Rs. 1.25 lakh are now taxed at a flat rate of 12.5%. This is an increase from the previous rate of 10%.
3. Indexation: The benefit of indexation, which allowed investors to adjust the purchase price for inflation, has been removed for all asset classes, including equity mutual funds.

Indexation was a method that allowed investors to adjust the purchase price of assets for inflation. This adjustment reduced taxable profits when selling assets like property or gold. Previously, these long-term capital gains were taxed at 20%. The new rule imposes a flat 12.5% tax on all long-term capital gains but eliminates any indexation benefits.

Capital Gains Tax	Holding Period	Old Rate	New Rate
Short-Term Capital Gains (STCG)	Less than 12 months	15%	20%
Long-Term Capital Gains (LTCG)	More than 12 months	10%	12.50%

Debt Mutual Funds

• Short-Term Capital Gains (STCG): If you sell your debt fund units within a period of 36 months, the gains are classified as short-term capital gains. The STCG will be taxed according to your income tax slab rate.
• Long-Term Capital Gains (LTCG): For debt funds held for a period over 36 months, the gains are classified as long-term capital gains. The new budget outlines a few changes on the LTCG for debt funds, including:

1. Tax Rate: A flat 12.5% tax rate applies to these gains.
2. No Indexation Benefit: The previous benefit of adjusting the purchase price for inflation is removed. Now, the entire gain after three years is taxable at 12.5%.

• Change in Holding Period for Specified Mutual Funds: Previously, debt mutual funds with a holding period of over 36 months were taxed based on the investor’s tax slab, classified as Long-Term Capital Gains (LTCG). Now, for specified mutual funds where over 65% of the investment is in debt, the holding period for taxation has been reduced to over 24 months. These funds will still be taxed according to the investor’s tax slab as either LTCG or STCG. 

Capital Gains Tax	Holding Period	Old Rate	New Rate
Short-Term Capital Gains (STCG)	Less than 36 months	Taxed according to your income tax slab	Taxed according to your income tax slab
Long-Term Capital Gains (LTCG)	More than 36 months	10%	12.50%

Hybrid Mutual Funds

Short-Term Capital Gains (STCG)

The tax on short-term capital gains depends on the fund’s asset allocation when it comes to hybrid mutual funds. Here is a breakdown of STCG tax rates according to their asset allocation in hybrid funds:

• Equity-Oriented Hybrid Funds (more than 65% in equity): The gains from units sold within 12 months are taxed at 20%.
• Debt-Oriented Hybrid Funds (less than 65% in equity): The gains from units sold within three years are taxed according to your income tax slab.

Long-Term Capital Gains (LTCG)

The capital gains tax on hybrid mutual funds that extend the specified period (12 or 36 months) is known as the long-term capital gain tax. The tax treatment under this condition is as follows:

• Equity-Oriented Hybrid Funds: The gains from units held for over a period of 12 months are taxed at 12.5%. The gains up to Rs. 1.25 lakh are tax-free.
• Debt-Oriented Hybrid Funds: The gains from units held for over a period of 36 months are taxed at 12.5% without indexation benefits. This means the entire gain is taxed at this rate, without adjustment for inflation.

Type of Hybrid  Fund	Short-Term Capital Gains (STCG)	Long-Term Capital Gains (LTCG)	Indexation Benefit
Equity-Oriented Hybrid Funds	20% for holdings less than 1 year	12.5% for holdings over 1 year, with gains up to Rs. 1.25 lakh tax-free	Not available
Debt-Oriented Hybrid Funds	Taxed as per income tax slab for holdings less than 3 years	12.5% for holdings over 3 years	Not available

Note: Mutual fund schemes where neither the equity nor debt orientation exceeds 65% will now be classified as long-term investments after 24 months. The previous holding period for these funds was 36 months. These will be taxed at the revised LTCG tax rate of 12.5%.

To Wrap It Up…

In conclusion, fixed income debt funds can be a valuable investment option for individuals seeking a balanced and lower-risk portfolio. These funds can provide a steady income stream, and their flexibility in terms of risk profiles caters to a diverse range of investors. Understanding the nuances of interest rates and credit risks is essential for making informed investment decisions.

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Frequently Asked Questions(FAQs) on Fixed Income Mutual Funds