Best Debt Funds For Investment in 2017 India Top Ten Debt Funds

A debt fund is a type of mutual fund that invests in fixed income securities like bonds, etc. Debt mutual funds mainly invest in a mix of debt or fixed income securities like Government securities, Treasury bills, Corporate bonds, etc. Debt funds are preferred by those who are looking for steady income with relatively lower risks, as its comparatively less volatile than equities. Before selecting the best debt funds to invest, it is important to know the benefits of investing in debt mutual funds.

List of Top 10 best debt funds in 2017 for investment in India. 

BEST DEBT FUNDS TO INVEST IN 2017. For reader’s convenience, I have categorised best debt funds according to its types.


SBI Premium Liquid – RP
ICICI Prudential Money Market Fund


Axis Banking Debt Fund
L&T Ultra Short Term Fund


Birla Sun Life Dynamic Bond Fund
HDFC Short Term Fund


IDFC SSIF-Investment Plan B
Reliance Dynamic Bond


ICICI Pru Gilt Inv Plan – PF
Invesco India Gilt – LDP

Interest on bank FD is treated like any other income hence taxed at your regular slab rates. However in the case of debt fund units in case you hold them for more than 36 month, you effective returns will be better than FD due to tax treatment explained below. The investments in debt funds

The investments in debt funds especially in liquid funds are more liquid than bank FD and generally, give slightly better returns than on FD. The returns are even better if held for more than 36 months.

As far as tax treatment is concerned the holding period requirement for debt funds has been increased from more than 12 months to more than 36 months from 10th July 2014. So in case, the units are redeemed within 36 months, the profit is treated as short term and is taxes at regular rates.
However, in case, the investment is held for more than 36 months it is treated as long-term capital gains and gets double benefits.

First, you are entitled to claim the benefit of indexation second benefit is that it is taxed flat rate of 20% even if your slab rate is 30%.
So due to the dual benefits, the debts funds are better than investments in fixed deposits from the taxation point of view.

After going through the above post, I am sure that you would have understood the basics of debt funds and how it’s better than other investment options. As mentioned in the post title I am sharing here top 10 debt funds for the investment purposes.

Following are the top ten good Debt Funds which have given superior returns over last 3 years.

Sundaram Gilt Fund – Regular Plan
ICICI Prudential Long Term Fund – Regular Plan
SBI Magnum Gilt Fund – Long Term Plan
L&T Gilt Fund – Investment Plan | Invest Online
IDFC Government Securities Fund – Short Term Plan – Regular Plan
Tata Dynamic Bond Fund – Regular Plan
IDFC Government Securities Fund – Provident Fund Plan – Regular Plan
Tata Gilt Mid Term Fund – Regular Plan
Birla Sun Life Medium Term Plan
UTI Gilt Advantage Long Term Plan

Tax Treatment in Debt Funds.

Tax Treatment: (For Individual Investors and HUF)
Dividends are tax-free in hands of investors. But mutual fund scheme has to pay 25 % + surcharge +cess = 28.84% tax on distributed income. Long Term Capital Gains : 20 % + surcharge +cess = 23.072% tax on long-term capital gains. If you sell after holding funds for more than 36 months then it is termed as long term capital gains.
Short Term Capital Gains : 30 % +cess = 30.9% tax on short-term capital gains. If you sell after holding funds for less than 36 months then it is termed as short term capital gains. (For 30 % Bracket).

How Debt Funds are better than Fixed Deposits. ?

If you are going to hold Debt funds for longer term i.e. more than 3 years then Debt funds are better than FDs. Also, another advantage of Debt funds is Banks keep on cutting TDS (if applicable) every year from FDs. With Debt funds (Groeth Plan), you can keep postponing this taxation till redemption.
The downside of debt funds is, the returns are not assured. With market conditions depending on interest rate environment returns can go up or down.

I have tried to cover all the things related to debt funds, have compared it with various other investments, still if anything you want to know which I have not mentioned in the post, feel free to comment here.

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