Top 3 Fixed Income Mutual Funds for 2025: Best Debt Funds

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Do you know why Fixed Income Mutual Funds are so popular in India? It is the only mutual fund investment that pays you a pre-agreed return for a limited time, usually in the form of a fixed interest rate.

For example, the most common type of fixed-interest investments are government or corporate bonds. However, how do you pick the winners?

This analysis explores the 3 Best Fixed Income Mutual Funds 2025 just for you. It will help you build a strong plan with the growing potential of fixed income mutual funds India.

What is a Fixed Income Mutual Fund?

The Fixed Income Mutual Funds are an investment option that focuses on investing in things like government bonds, corporate bonds, debentures and other fixed-income securities. The main purpose of these funds is to provide steady income to investors through the interest earned from these investments. Because they invest in debt-based assets, these funds are also called debt funds. Moreover, fixed income funds are a safer choice compared to Equity Funds, which is why for a smart investor like you; it is a good opportunity to make stable returns for long-term growth in 2025.

3 Best Fixed Income Mutual Funds India 2025

Here are the 3 best fixed income mutual funds to invest in via a systematic investment plan in 2025:

ICICI Prudential Short Term Debt Fund

The ICICI Prudential Short Term Debt Fund was launched on 1^st October 2001, while giving outstanding SIP returns of 7.43% in 3 years and 7.01% in the last 5 years beating its benchmark of 6.99% and 6.26% respectively. This debt fund is a good choice if you are a low-risk taker and you can start a systematic investment plan at just Rs.1000 and kick-start your financial portfolio in 2025.

Let’s compare the SIP returns with its benchmark returns with the help of a bar graph:

Looking at the above graph, imagine if you had started a SIP of Rs.3000 five years ago, your total investments today would be Rs.1,80,000. In addition, after adding the net profit, your total value would be Rs.2,12,070 lakh on today’s date.

Pro Tip: Fast-track your calculation using the SIP Calculator tool for free. 

Furthermore, before starting a systematic investment plan, check out the debt quality of ICICI Prudential Short Term Debt Fund:

The fund has a shorter Macaulay duration 2.37 years than the category average of 2.81 years, it is less sensitive to interest rate changes. Its average maturity of 3.95 years is a bit longer than the category 3.61 years, suggesting it may take on slightly more risk. The fund also offers a slightly higher yield to maturity of 7.74% compared to the category of 7.4%, which could mean a slightly better return if held to maturity.

Nippon India Nivesh Lakshya Fund

After being launched on 5th July 2018, the Nippon India Nivesh Lakshya Fund has delivered 8.85% SIP returns in the last 3 years, outstandingly beating the benchmark returns of 7.79%. Moreover, its prime focus is investing in government securities for a long duration to yield better returns for you.

Let’s see the SIP returns over different years against the benchmark returns:

Now, if you had started a SIP of Rs.3000, that too 5 years ago, you would have invested a total of Rs.1,80,000 of your money and would have made Rs.2,13,747 as your whopping total in today’s date.

The next step is to check the quality of these assets:

The fund has a slightly shorter Macaulay duration of 10.97 years than the category 11.67 years; it is less sensitive to changes in interest rates. Its average maturity of 22.06 years is also shorter compared to the category 27.46 years, which suggests a bit less long-term risk. The fund offers a slightly higher yield to maturity, 7.13%, than the category of 7.09%, which could mean slightly better returns if the bonds are held to maturity.

The Nippon India Nivesh Lakshya Fund is best suited if you have intentions of investing for 8 years or more, which will give you added tax-efficient returns in 2025.

ICICI Prudential Gilt Fund

The ICICI Prudential Gilt Fund, launched on 19 August 1999, makes it amongst the oldest schemes in its category. With Rs.6,777 crore in investments, it has given 6.84% returns in 5 years, beating the benchmark of 6.19% with close margins. Likewise, the fund uses top-down macroeconomic analysis to plan a successful strategy, also considering factors like GDP growth, fiscal policy and global influences.

Refer to the below bar graph to compare this Mutual Funds return with benchmark returns:

If you had started a SIP of Rs.3000, that too 5 years ago, the total investment would be Rs.1,80,000. In comparison, your portfolio will show a whopping total of Rs.2,12,886 on today’s date.

The next step is to know the quality of the ICICI Prudential Gilt Fund and for that, you need the following checks:

The fund has a shorter duration of 3.75 years compared to the category 8.39 years, meaning it's less sensitive to changes in interest rates. Its average maturity of 6.55 years is also shorter than the category’s 17.26 years, indicating less long-term risk. The fund offers a slightly higher return, 6.98%, than the category 6.96%, so it might give you a little more return if you hold it until maturity.

Moving on, the next section will help you check if these 3 top fixed income mutual funds suit you or not.

Who Should Invest in Fixed Income Mutual Funds 2025?

You can check the suitability of these 3 best fixed income mutual funds for 2025 in the below points:

1. Conservative Investors

If you prefer safer, more predictable investments and want to avoid the fluctuations of the stock market, fixed income mutual funds, are your best bet in 2025. They focus on stable returns and lower-risk assets.

2. Those Seeking Daily Income

If you are looking for a steady income, especially when other investments are not performing well, fixed income mutual funds can give you a reliable source of income via regular interest payments.

3. Looking to Diversify Investments

If you already have a mix of stocks or other investments, Fixed Income Mutual Funds can help balance out your portfolio. These funds give you a way to add stability to your portfolio at the same time reducing overall risk.

4. Older Investors or Retirees

Are you someone with retirement plans? If yes, you will find fixed income mutual funds as their go-to investment option. These are a type of debt funds that offer safety and steady returns, which is important for generating strong wealth for retirement.

5. Low-Risk Takers

Are you an investor who not willing to bet too much risk? But you still want your money to grow; these funds can be a good option. They invest in debt securities, which are generally safer than stocks.

Factors to Know Before Investing in Fixed Income Mutual Funds

Here are the important considerations to note before investing in fixed income mutual funds:

1. Financial Goals

Think about what you want to achieve with your investment. Are you looking for a steady income, or do you want to earn more than what you would get from a savings account? Choose the best fixed-income mutual funds India that match your specific financial goals.

2. Past Performance

It’s a good idea to check how the fund’s performance in the past 5 to 10 years. Look at its returns compared to other fixed income securities or its benchmark. The past track record speaks to the consistency of the fund and gives a sense of trust to expect continuous good results.

3. Investment Duration

Fixed Income Mutual Funds vary in terms of how long you need to keep your money invested. Some might be short-term, while others are longer-term. Think about how long you need to stay invested to achieve your desired goals and how long you’re comfortable keeping your money in the fund.

4. Risks

Though fixed income securities give a safer investment choice than equity funds, it also has potential risks. Changes in interest rates, credit risk, or liquidity issues can all affect how the fund performs. Make sure you understand the risks before you invest.

5. Costs

Look at the fund’s expense ratio; it is the fee you pay for the fund manager’s services. The lower the expense ratio, the more of your investment stays in your pocket, so it’s worth paying attention to.

Summary of Best Fixed Income Mutual Funds 2025

To wrap up the analysis of the 3 best fixed income mutual funds India, you can start your investments via SIP to minimize the overall risk. If a regular source of income is what you are after, fixed income funds are a great choice to generate stable long-term returns in the next 5 years.

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