Debt mutual funds are a go-to choice for conservative investors looking for stable and predictable returns with low risk. Since the start of the year, the markets have been very volatile, hence most of the retail participants are trying to avoid the harsh ups and downs of the market by switching from equity to debt instruments. And if you are one of them who is planning to venture into the debt market, or just simply diversify your portfolio into low-risk assets? You have come to the right place, because we are going to talk about the best picks for debt mutual funds in June 2025, and which one of those would be the best for your profile.
Why Consider Debt Mutual Funds in June 2025
1. Stable Interest Rates: The RBI’s cutting the interest rates has caused a sudden boom in demand for debt mutual funds, which is giving it a dovish stance. The fall in interest rates has caused the prices to go up; additionally, it is also providing steady income to the underlying bonds in the mutual fund (MF)
2. Market Uncertainty: Geopolitical concerns are rising around the globe, especially with tensions in Central Asia, the Middle East, and the very recent Israel-Iran war. This reason has caused the VIX across the globe to tremble, and people are vague about the future in equity, hence most of them are preferring more predictable products such as Debt.
3. Better Liquidity and Flexibility than Fixed Deposits: Most of the debt mutual funds, unlike fixed deposits (FDs), can be redeemed anytime as there is no lock-in period and no early-redemption charges. Once redeemed, the money will be credited in T+1 or T+2 days. Additionally, they give you a lot of choices of MFs with different durations and risks, which is absent in FDs.Tax benefits were also another reason to invest in debt MFs, but since April 1st, 2023 it has changed, as now you no longer get indexation benefits. But again if there are any grandfathered investments made before April 1st, 2023 you will still be able to benefit from this regulation’s act.
| TYPE | IDLE FOR | RISK | DURATION |
| Liquid Fund | Emergency Fund, Idle Cash | Low | Up to 3 months |
| Ultra Short Duration Fund | Short-term Parking | Low | 3-6 months |
| Short Duration Fund | Stable short-term return | Low-Medium | 1-3 years |
| Corporate Bond Fund | Regular Income | Low-Medium | 1-5 years |
| Gilt Fund | Zero Credit Risk | Medium-High | 3+ years |
| Dynamic Bond Fund | Active Interest Rate Play | Medium-High | Varies |
5 Best Debt Mutual Funds for June 2025
1. ICICI Prudential Corporate Bond Fund
- Type : Corporate Bond Fund
- Returns (3Y CAGR) : ~7.8%
- Why Invest: Invests in high-rated(AAA bonds) and suitable for medium-term goals with low credit risk.
2. HDFC Short Term Debt Fund
- Type : Short Duration Fund
- Returns(3Y CAGR) : ~7.2%
- Why Invest: Good for investors seeking stable returns with 1–3 year investment horizon.
3. SBI Magnum Low Duration Fund
- Type : Low Duration Fund
- Returns(1Y) : ~6.5%
- Why Invest: Ideal for parking idle money with minimal interest rate risk.
4. Axis Treasury Advantage Fund
- Type: Ultra Short Duration Fund
- Returns (1Y): ~6.7%
- Why Invest: High liquidity, great for short-term surplus money with lower volatility.
5. Kotak Dynamic Bond Fund
- Type: Dynamic Bond Fund
- Returns (5Y CAGR): ~7.6%
- Why Invest: Actively managed, suitable for investors comfortable with duration risk.
| FUND NAME | 1Y RETURN (%) | 3Y RETURN (%) | EXPENSE RATIO |
| ICICI Prudential Corporate Bond | 7.4 | 7.8 | 0.36 |
| HDFC Short Term Debt | 6.9 | 7.2 | 0.40 |
| SBI Magnum Low Duration | 6.5 | 6.9 | 0.35 |
| Kotak Dynamic Bond Fund | 10.06 | 7.76 | 0.32 |
| Axis Treasury Advantage Fund | 8.6 | 7.6 | 0.32 |
Also read: SEBI’s Latest Mutual Fund Nomination Rules: What Investors Must Know
Tips to Choose The Best Mutual Funds
1. Match duration to your goal: Fix an investment horizon and according to that search a mutual fund for yourself.
2. Check the credit rating: The MFs who invest primarily in high-credit-rated debt are generally considered safe but will provide less interest, so if you are expecting a high rate of return, then you should also be willing to take more risk.
3. Check the exit load: If you are looking for liquidity, then it is important to go through the exit policy, especially if there is any kind of exit load i.e., the fees to redeem a MFs before the due date.
4. Consistent Returns: It is important to look at the empirical data of the fund, at least for the past 3 to 5 years, to see how well it performed.
5. Fund manager track record: Debt mutual funds with experienced and reputed fund manager will always be a safe haven for the money
How to Manage Risks in Debt Mutual Funds
1. Credit risk: When the funds are given to low-rated companies, it sometimes becomes difficult to get them back; hence, it is important to see what kind of companies are the funds are being invested into.
2. Interest rate risk: Interest rates are one of the important points to be kept in mind when preparing to buy any kind of debt instrument, this is because the price of a bond is inversely proportional to the interest rates’ hike, i.e., an increase in interest rates would bring the prices of bonds down and vice versa
3. Liquidity Risk: There also exists a risk of liquidity in some of the MFs, this is because some fund houses do not allow premature withdrawal of funds or charge a fee to do so. Moreover, it is sometimes impossible for the fund manager to exit when there is market stress. Hence, it is recommended to stick to large AUM for funds with a diverse portfolio, as this would help with liquidity.
Written by Adithya Menon
