Mutual Fund investment is often considered for those who are willing to park their money for longer durations, like five or ten years. These investment tools offer a unique blend of exposure to equity markets and relatively lower volatility.
For investors who are willing to park their money in mutual funds for a shorter duration, like six, four, three, two or even one month, can consider debt mutual funds.
Unlike equity mutual funds, debt mutual funds invest the money into fixed-income securities like bonds, government securities, and other debt instruments. Hence, they provide investors with relatively stable returns and low risk compared to equity investments.
The only common link between equity mutual funds and debt mutual funds is that investors will not directly put their money into a tool. Rather, their money will be collectively invested by a mutual fund manager into multiple investment options based on market situations and other factors.
What is Debt Mutual Funds?
Debt mutual funds are a type of pooled investment option where the investors’ money is lent to the government, companies, or banks. In return, investors earn interest just like a bank that gives out loans.
Best Debt Mutual Funds For 1, 3, 6 months investment
Debt mutual funds are sub-categorised into long duration, medium to long duration, short duration, money market, low duration, ultra short duration, liquid, overnight, dynamic bond, corporate bond, credit risk, banking and PSU, floater, FMP, gilt, etc.
Low-duration debt mutual funds offer investment options in bonds and debt instruments for a duration of one month to even ten years. Here are the top performing mutual funds in the category for a duration of one, two or three months, according to Association of Mutual Funds in India data as on 26 July, 2025.
Best Debt Mutual Funds For 1 Month Duration
| Scheme Name | Benchmark | Riskometer | Latest NAV (₹) | 1-Month Return (%) |
|---|---|---|---|---|
| Regular | Direct | |||
| Aditya Birla Sun Life Low Duration Fund | NIFTY Low Duration Debt Index A-I | Moderate | 681.0496 | 732.6214 |
| Axis Treasury Advantage Fund | NIFTY Low Duration Debt Index A-I | Low to Moderate | 3116.1345 | 3267.3621 |
| Bandhan Low Duration Fund | NIFTY Low Duration Debt Index A-I | Low to Moderate | 38.8414 | 39.7961 |
| Baroda BNP Paribas Low Duration Fund | CRISIL Low Duration Debt A-I Index | Low to Moderate | 40.3370 | 44.1870 |
| Canara Robeco Savings Fund | CRISIL Low Duration Debt A-I Index | Low to Moderate | 42.4438 | 43.6252 |
Best Debt Mutual Funds For 3 Months Duration
| Scheme Name | Benchmark | Riskometer (Scheme) | 3-Month Return (%) Regular | 3-Month Return (%) Direct |
|---|---|---|---|---|
| HSBC Low Duration Fund | NIFTY Low Duration Debt Index A-I | Low to Moderate | 12.33 | 12.98 |
| ICICI Prudential Savings Fund | NIFTY Low Duration Debt Index A-I | Moderate | 7.82 | 7.93 |
| Franklin India Low Duration Fund | NIFTY Low Duration Debt Index A-I | Low to Moderate | 7.79 | 8.45 |
| UTI Low Duration Fund | NIFTY Low Duration Debt Index A-I | Low to Moderate | 7.74 | 7.83 |
| Axis Treasury Advantage Fund | NIFTY Low Duration Debt Index A-I | Low to Moderate | 7.70 | 8.02 |
Best Mutual Fund For 6 Months Duration
| Scheme Name | Benchmark | 6-Month Return (%) Regular | 6-Month Return (%) Direct |
|---|---|---|---|
| HSBC Low Duration Fund | NIFTY Low Duration Debt Index A-I | 11.19 | 11.80 |
| ICICI Prudential Savings Fund | NIFTY Low Duration Debt Index A-I | 8.88 | 9.10 |
| UTI Low Duration Fund | NIFTY Low Duration Debt Index A-I | 8.88 | 8.87 |
| Axis Treasury Advantage Fund | NIFTY Low Duration Debt Index A-I | 8.87 | 9.19 |
| HDFC Low Duration Fund | NIFTY Low Duration Debt Index A-I | 8.71 | 9.31 |
Low-duration funds are a popular choice for investors seeking stable returns. These funds invest in debt and money market instruments with maturities ranging from 6 to 12 months. They offer better returns than savings accounts or ultra-short duration funds, while maintaining low volatility.
Interest Rate Sensitivity
The short average maturity of these funds makes them less sensitive to interest rate fluctuations compared to long-duration bond funds. This characteristic provides stability in environments where rates are changing frequently.
Investors often appreciate the lower credit risk associated with many low-duration funds. These funds typically include high-quality instruments such as government securities, treasury bills, and AAA-rated corporate bonds. This reduces the likelihood of default, although it depends on the specific portfolio of each fund.
Liquidity and Accessibility
One of the key advantages of low-duration funds is their liquidity. Investors can redeem their investments quickly, usually within one working day. This makes them an excellent option for short-term needs or for parking idle funds temporarily.
For those holding these investments for over three years, there is an added benefit of tax efficiency. While gains are taxed according to the slab if held for less than three years, longer holdings may qualify for indexation benefits, making them more tax-efficient than fixed deposits.