Debt mutual funds are often considered safer compared to equity funds as they invest primarily in fixed-income securities such as government bonds, corporate bonds, and money market instruments. While they are generally meant for conservative investors seeking stability and regular income, the last one year has surprised many as several debt mutual funds delivered extraordinary returns, ranging from 10% to as high as 24%. This is significantly higher compared to traditional debt fund returns in previous years. In this article, we will look at the Top 10 Debt Mutual Funds that outperformed in the last 1 year, their investment objectives, past performance, risk factors, and who should consider investing in them.
Earlier we wrote about 10 Mutual Funds Outperformed in Last 1 Year with 37% to 82% Returns
List of Top 10 Debt Mutual Funds Outperformed in Last 1 Year
| Rank | Mutual Fund Scheme | 1-Year Return (%) |
|---|---|---|
| 1 | DSP Credit Risk Fund | 22.93 |
| 2 | HSBC Credit Risk Fund | 21.68 |
| 3 | Aditya Birla Sun Life Credit Risk Fund | 17.40 |
| 4 | Aditya Birla Sun Life Medium Term Plan | 13.81 |
| 5 | Franklin India Income Plus Arbitrage Active FoF | 13.80 |
| 6 | Nippon India Medium Duration Fund | 11.00 |
| 7 | Invesco India Credit Risk Fund | 10.72 |
| 8 | Nippon India Credit Risk Fund | 10.34 |
| 9 | Franklin India Corporate Debt Fund | 10.21 |
| 10 | Bank of India Short Term Income Fund | 10.13 |
Data as of 21-Aug-2025
Deep Dive into Each Debt Mutual Fund Scheme
#1 – DSP Credit Risk Fund
Fund Objective: Invests primarily in corporate bonds and debt securities with an aim to generate higher returns through credit opportunities.
Annualised Returns:
- 1 Year: 22.93%
- 3 Years: 15.44%
- 5 Years: 12.28%
- 10 Years: 8.76%
Who Can Invest:
- Investors with moderate to high risk appetite
- Those looking for higher returns compared to traditional FDs
Risk Factors:
- Credit default risk from lower-rated bonds
- Interest rate fluctuations
Earlier we wrote about Best Debt Mutual Funds to invest during Interest Rates Fall which you can check.
#2 – HSBC Credit Risk Fund
Fund Objective: Focuses on generating income by investing in a portfolio of corporate debt instruments with credit opportunities.
Annualised Returns:
- 1 Year: 21.68%
- 3 Years: 11.93%
- 5 Years: 9.68%
- 10 Years: 8.07%
Who Can Invest:
- Investors seeking higher yields from corporate debt
- Suitable for those willing to take moderate credit risk
Risk Factors:
- Default risk from lower-rated bonds
- Liquidity risk in volatile markets
#3 – Aditya Birla Sun Life Credit Risk Fund
Fund Objective: Seeks to generate higher income by investing predominantly in corporate bonds with credit risk exposure.
Annualised Returns:
- 1 Year: 17.40%
- 3 Years: 11.36%
- 5 Years: 10.35%
- 10 Years: 9.15%
Who Can Invest:
- Conservative investors looking for above-average debt returns
- Suitable for medium to long-term holding
Risk Factors:
- Moderate credit risk
- Sensitive to changes in credit ratings
#4 – Aditya Birla Sun Life Medium Term Plan
Fund Objective: Invests in medium duration debt securities for steady income and moderate capital appreciation.
Annualised Returns:
- 1 Year: 13.81%
- 3 Years: 10.09%
- 5 Years: 13.08%
- 10 Years: 9.34%
Who Can Invest:
- Investors with medium-term investment horizon (3–5 years)
- Suitable for those seeking balance between safety and returns
Risk Factors:
- Interest rate risk
- Moderate credit exposure
#5 – Franklin India Income Plus Arbitrage Active FoF
Fund Objective: Seeks to provide long-term growth by investing in arbitrage opportunities and fixed-income securities.
Annualised Returns:
- 1 Year: 13.80%
- 3 Years: 14.30%
- 5 Years: 15.76%
- 10 Years: 8.55%
Who Can Invest:
- Investors looking for consistent returns with lower risk
- Suitable for conservative investors seeking stability
Risk Factors:
- Arbitrage opportunities may vary
- Moderate market volatility impact
Investors can explore 12 Mutual Funds Outperformed in Last 2 Years with 75% to 118% Returns
#6 – Nippon India Medium Duration Fund
Fund Objective: Invests in debt and money market instruments with medium duration for steady income.
Annualised Returns:
- 1 Year: 11.00%
- 3 Years: 8.73%
- 5 Years: 9.25%
- 10 Years: 4.22%
Who Can Invest:
- Investors with a 3–4 year horizon
- Suitable for moderately conservative investors
Risk Factors:
- Interest rate fluctuations
- Moderate credit exposure
#7 – Invesco India Credit Risk Fund
Fund Objective: Focuses on generating income by investing in lower-rated corporate bonds.
Annualised Returns:
- 1 Year: 10.72%
- 3 Years: 10.36%
- 5 Years: 7.79%
- 10 Years: 6.88%
Who Can Invest:
- Investors seeking higher debt fund returns with moderate risk
- Suitable for long-term income generation
Risk Factors:
- Higher credit risk due to exposure to lower-rated debt
- Market liquidity concerns
#8 – Nippon India Credit Risk Fund
Fund Objective: Generates income by investing primarily in corporate debt instruments with credit opportunities.
Annualised Returns:
- 1 Year: 10.34%
- 3 Years: 9.00%
- 5 Years: 9.59%
- 10 Years: 6.87%
Who Can Invest:
- Investors with moderate risk appetite
- Suitable for 3–5 year holding period
Risk Factors:
- Credit downgrade risk
- Corporate bond default possibility
#9 – Franklin India Corporate Debt Fund
Fund Objective: Seeks stable income by investing in high-quality corporate debt instruments.
Annualised Returns:
- 1 Year: 10.21%
- 3 Years: 8.08%
- 5 Years: 6.89%
- 10 Years: 7.88%
Who Can Invest:
- Conservative investors seeking predictable income
- Suitable for long-term allocation to corporate debt
Risk Factors:
- Interest rate fluctuations
- Lower risk compared to credit risk funds
#10 – Bank of India Short Term Income Fund
Fund Objective: Aims to generate income by investing in short-term debt instruments.
Annualised Returns:
- 1 Year: 10.13%
- 3 Years: 10.25%
- 5 Years: 10.70%
- 10 Years: 6.31%
Who Can Invest:
- Short to medium-term investors
- Conservative investors looking for regular income
Risk Factors:
- Lower risk due to short-term investments
- Sensitive to short-term interest rate movements
Conclusion
Debt mutual funds have traditionally delivered stable but moderate returns. However, in 2025, several schemes, especially credit risk funds and medium duration funds, have surprised investors with double-digit returns, even touching 24% in some cases. While this makes them attractive, investors must remember that higher-yielding debt funds also come with credit risks and interest rate risks. Conservative investors can stick to corporate debt or short-term funds, whereas those with a moderate to high risk appetite can explore credit risk funds for better returns.
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1 comment
Add a comment ↓#5 – Franklin India Income Plus Arbitrage Active FoF..I think, for this fund, the tax will be like equity after 2 years