Debt mutual funds are often perceived as a safe haven for conservative investors, as they primarily invest in fixed-income securities such as government bonds, corporate bonds, and money market instruments. Traditionally, they deliver moderate returns with lower volatility compared to equity funds. However, the last 5 years have been surprising – several debt mutual funds have delivered extraordinary absolute returns, ranging from 63% to as high as 220%. This far outperformed the expectations of many investors who considered debt funds as slow movers. In this article, let us look at the Top 10 Debt Mutual Funds that outperformed in the last 5 years, their investment objectives, past performance, risk factors, and who should consider investing in them.
Earlier we wrote about 10 Debt Mutual Funds Outperformed in Last 1 Year with 10% to 24% Returns in 2025.
How We Filtered These Debt Mutual Funds?
While preparing this list, we considered all categories of debt mutual funds – including Credit Risk Funds, Ultra Short Duration Funds, Short Duration Funds, Medium to Long Duration Funds, Arbitrage Funds and more. From this wide universe, we analyzed the performance of each fund over the last 5 years.
Our focus was on identifying funds that have consistently delivered the highest absolute returns during this period. Based on this analysis, we shortlisted the top 10 debt mutual funds that stood out with returns ranging from 63% to 220% in the 5-year horizon.
This method ensures that our selection is not limited to a single debt fund category, but instead captures the best-performing funds across the debt mutual fund spectrum.
List of Top 10 Debt Mutual Funds Outperformed in Last 5 Years
| Rank | Mutual Fund Scheme | 5-Year CAGR (%) | 5-Year Absolute Returns (%) | 1 Lakh Invested Became |
|---|---|---|---|---|
| 1 | Bank of India Credit Risk Fund | 26.23 | 220% | ₹3.20 Lakhs |
| 2 | Franklin India Income Plus Arbitrage Active FoF | 16.19 | 114% | ₹2.14 Lakhs |
| 3 | HDFC Income Plus Arbitrage Active FoF | 15.38 | 104% | ₹2.04 Lakhs |
| 4 | Aditya Birla Sun Life Medium Term Plan | 12.67 | 82% | ₹1.82 Lakhs |
| 5 | DSP Credit Risk Fund | 12.28 | 79% | ₹1.79 Lakhs |
| 6 | ICICI Prudential Income Plus Arbitrage Active FoF | 11.55 | 73% | ₹1.73 Lakhs |
| 7 | Bank of India Short Term Income Fund | 10.64 | 65% | ₹1.65 Lakhs |
| 8 | Baroda BNP Paribas Credit Risk Fund | 10.60 | 65% | ₹1.65 Lakhs |
| 9 | UTI Credit Risk Fund | 10.30 | 63% | ₹1.63 Lakhs |
| 10 | Aditya Birla Sun Life Credit Risk Fund | 10.29 | 63% | ₹1.63 Lakhs |
Data as of 17-Sep-2025
Deep Dive into Each Debt Mutual Fund Scheme
#1 – Bank of India Credit Risk Fund
Fund Objective: Invests primarily in lower-rated corporate bonds with the aim of generating high returns from credit opportunities.
Annualised Returns:
- 3 Years: 6.09%
- 5 Years: 26.23%
- 10 Years: 1.91%
Who Can Invest:
- Investors with high risk appetite in debt category
- Those seeking equity-like returns from debt funds
Risk Factors:
- High credit default risk
- Liquidity risk in volatile markets
As the name indicates, Credit risk funds are riskier among the debt funds. As an example, BOI Axa Credit Risk Fund writes-off 105 Crores. This amount was adjusted against the NAV where investors were the losers. So not just gains, investors need to understand the risks involved in such funds.
#2 – Franklin India Income Plus Arbitrage Active FoF
Fund Objective: Seeks to provide long-term growth through arbitrage opportunities and fixed-income securities.
Annualised Returns:
- 3 Years: 15.17%
- 5 Years: 16.19%
- 10 Years: 8.83%
Who Can Invest:
- Investors looking for consistent returns
- Suitable for conservative investors seeking stability
Risk Factors:
- Arbitrage opportunities may reduce in flat markets
- Moderate market volatility impact
#3 – HDFC Income Plus Arbitrage Active FoF
Fund Objective: Invests in arbitrage opportunities and income-generating debt securities to deliver steady growth.
Annualised Returns:
- 3 Years: 13.05%
- 5 Years: 15.38%
- 10 Years: 12.28%
Who Can Invest:
- Investors with low to moderate risk appetite
- Suitable for 5+ year holding horizon
Risk Factors:
- Dependence on arbitrage market opportunities
- Moderate credit and interest rate risk
#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:
- 3 Years: 10.07%
- 5 Years: 12.67%
- 10 Years: 9.36%
Who Can Invest:
- Medium-term investors (3–5 years)
- Conservative investors seeking better than FD returns
Risk Factors:
- Interest rate risk
- Moderate credit exposure
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#5 – DSP Credit Risk Fund
Fund Objective: Invests in corporate bonds with credit opportunities to generate higher income.
Annualised Returns:
- 3 Years: 15.57%
- 5 Years: 12.28%
- 10 Years: 8.78%
Who Can Invest:
- Investors with moderate to high risk appetite
- Suitable for those seeking higher returns vs FDs
Risk Factors:
- Credit downgrade and default risks
- Sensitive to interest rate changes
#6 – ICICI Prudential Income Plus Arbitrage Active FoF
Fund Objective: Aims to deliver consistent returns by combining arbitrage opportunities with debt investments.
Annualised Returns:
- 3 Years: 12.09%
- 5 Years: 11.55%
- 10 Years: 9.25%
Who Can Invest:
- Conservative investors looking for stable returns
- Suitable for medium to long-term allocation
Risk Factors:
- Limited arbitrage opportunities may reduce performance
- Moderate credit and interest rate exposure
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#7 – Bank of India Short Term Income Fund
Fund Objective: Aims to generate stable income by investing in short-term debt instruments.
Annualised Returns:
- 3 Years: 10.36%
- 5 Years: 10.64%
- 10 Years: 6.30%
Who Can Invest:
- Short to medium-term investors
- Conservative investors seeking predictable income
Risk Factors:
- Low to moderate interest rate risk
- Lower credit risk exposure
#8 – Baroda BNP Paribas Credit Risk Fund
Fund Objective: Focuses on generating higher income by investing in lower-rated corporate bonds.
Annualised Returns:
- 3 Years: 8.71%
- 5 Years: 10.60%
- 10 Years: 8.75%
Who Can Invest:
- Investors seeking higher returns within debt space
- Moderate risk takers
Risk Factors:
- Higher credit risk from lower-rated bonds
- Liquidity risks during market stress
#9 – UTI Credit Risk Fund
Fund Objective: Invests primarily in corporate bonds with an aim to generate high income.
Annualised Returns:
- 3 Years: 8.02%
- 5 Years: 10.30%
- 10 Years: 3.91%
Who Can Invest:
- Investors willing to take moderate credit risk
- Suitable for 3–5 year horizon
Risk Factors:
- Credit downgrade and default risks
- Liquidity challenges in stressed markets
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#10 – Aditya Birla Sun Life Credit Risk Fund
Fund Objective: Seeks to generate higher income by investing predominantly in corporate bonds with credit exposure.
Annualised Returns:
- 3 Years: 11.45%
- 5 Years: 10.29%
- 10 Years: 9.20%
Who Can Invest:
- Investors with moderate risk appetite
- Suitable for medium to long-term holding
Risk Factors:
- Credit downgrade risk
- Possibility of corporate bond defaults
Conclusion
Debt mutual funds, which were once considered safe and slow-moving, have shown that they too can deliver exceptional returns over a 5-year horizon. With absolute returns ranging from 63% to 220%, these funds have surprised investors, especially credit risk and arbitrage-oriented schemes. However, investors must remember that higher returns in debt funds usually come with higher credit risks and interest rate sensitivity. Conservative investors can stick to short-term and corporate debt funds, while those with a higher risk appetite can explore credit risk and arbitrage funds for superior long-term returns.
Disclaimer: Mutual fund investments are subject to market risks. The list above is purely based on past performance and is not a recommendation to invest. Investors should consider their risk profile, investment horizon, and consult a financial advisor before making any investment decisions.
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