Overview

• Debt Mutual Funds offer stable and consistent returns with lower risk in 2025.

• Top-performing funds like DSP and Aditya Birla Sun Life show strong multi-year gains.

• Combining short-term and medium-term Bonds ensures steady income and capital safety.

Investing in debt mutual funds has become an attractive option for those who prefer stability and consistent returns over high risk. Debt funds primarily invest in fixed-income securities, such as government and corporate bonds. As interest rates continue to change and markets shift, selecting the right debt mutual fund becomes crucial to achieving consistent growth and minimal volatility.

Several funds have shown great performance through their past returns, risk-adjusted moves, and managing quality. Let's take a look at some of the best-performing debt mutual funds for stable returns, based on their 1-year, 3-year, and 5-year track records.

Understanding the Role of Debt Mutual Funds

Debt mutual funds play a vital role in a balanced portfolio. They are designed to generate stable income and preserve capital, making them ideal for conservative investors or those nearing financial goals. Unlike equity funds, they are less affected by stock market volatility, though they do carry some risks, such as credit risk and interest rate risk.

For 2025, investors are leaning toward funds that can provide consistent performance with a moderate level of risk. Credit risk funds, medium-duration funds, and short-term income funds are among the top choices for this purpose.

Bank of India Credit Risk Fund Direct - Growth

• NAV: Rs. 12.77

• AUM: Rs. 106.49 Crores

• 1-Month Returns: 0.99%

• 3-Month Returns: 1.72%

• 1-Year Returns: 6.82%

• 3-Year Returns: 6.47%

• 5-Year Returns: 26.32%

The Bank of India Credit Risk Fund Direct - Growth has delivered impressive long-term performance. Its 5-year return of 26.32% is the highest among the listed funds. This shows its ability to generate substantial cumulative gains over time, despite short-term fluctuations.

The fund’s steady 1-year return of 6.82% and 3-year return of 6.47% indicate consistent management and controlled exposure to credit risk. With a modest AUM of Rs. 106.49 crores, the fund maintains flexibility in portfolio allocation. It is a suitable choice for investors seeking stability with a slightly higher return potential in the credit risk category.

Aditya Birla Sun Life Medium Term Plan Fund Direct - Growth

• NAV: Rs. 44.54

• AUM: Rs. 2,775.06 Crores

• 1-Month Returns: 0.96%

• 3-Month Returns: 1.75%

• 1-Year Returns: 11.99%

• 3-Year Returns: 10.47%

• 5-Year Returns: 13.33%

The Aditya Birla Sun Life Medium Term Plan Fund is one of the largest in this category, with an AUM of Rs. 2,775.06 crores. It has shown impressive annualized returns of 11.99% over the last year and 13.33% over 5 years.

This fund’s focus on medium-term corporate bonds and government securities allows it to balance risk and return effectively. Its consistent track record and strong asset base make it a reliable option for those looking for regular income with moderate volatility.

Also Read: Top US Equity Funds to Watch in 2025

DSP Credit Risk Fund Direct - Growth

• NAV: Rs. 55.14

• AUM: Rs. 208.42 Crores

• 1-Month Returns: 0.57%

• 3-Month Returns: 1.20%

• 1-Year Returns: 22.56%

• 3-Year Returns: 15.85%

• 5-Year Returns: 12.02%

The DSP Credit Risk Fund Direct - Growth has shown exceptional short-term performance, with a 1-year return of 22.56%. This impressive figure indicates that the fund’s portfolio positioning has benefited from favorable credit spread movements and interest rate cycles.

Its 3-year return of 15.85% and 5-year cumulative return of 12.02% confirm that it has sustained performance over the long term. Despite a moderate AUM of Rs. 208.42 crores, the fund has managed credit exposures efficiently, offering high returns with calculated risk.

Bank of India Short Term Income Fund Direct - Growth

• NAV: Rs. 29.71

• AUM: Rs. 238.22 Crores

• 1-Month Returns: 0.62%

• 3-Month Returns: 1.40%

• 1-Year Returns: 9.98%

• 3-Year Returns: 10.65%

• 5-Year Returns: 10.61%

This fund focuses on short-duration instruments, which makes it less sensitive to interest rate fluctuations. With stable 1-year and 3-year returns above 9%, it offers consistent growth for conservative investors.

The 5-year return of 10.61% highlights the fund’s reliability in maintaining returns over more extended investment periods. It is well-suited for those seeking safety and predictable returns without taking high credit risks.

Baroda BNP Paribas Credit Risk Fund Direct - Growth

• NAV: Rs. 25.08

• AUM: Rs. 202.40 Crores

• 1-Month Returns: 0.75%

• 3-Month Returns: 1.83%

• 1-Year Returns: 9.13%

• 3-Year Returns: 8.89%

• 5-Year Returns: 10.42%

This fund has maintained steady performance across different time periods. The 1-year return of 9.13% and the 5-year cumulative return of 10.42% demonstrate its consistent management of credit exposure.

With a manageable AUM of Rs. 202.40 crores, the fund remains flexible and responsive to market changes. It is a balanced option for those seeking moderate risk and regular income potential.

Aditya Birla Sun Life Credit Risk Fund Direct - Growth

• NAV: Rs. 25.31

• AUM: Rs. 1,066.23 Crores

• 1-Month Returns: 1.05%

• 3-Month Returns: 2.31%

• 1-Year Returns: 14.47%

• 3-Year Returns: 11.82%

• 5-Year Returns: 10.32%

The Aditya Birla Sun Life Credit Risk Fund Direct - Growth is one of the most stable performers in the credit risk category. With 1-year returns of 14.47% and 3-year returns of 11.82%, it demonstrates superior credit selection and effective duration management.

Its large AUM of Rs. 1,066.23 crores shows investor confidence and fund stability. This fund can be a core holding for those seeking stable, inflation-beating returns over the medium term.

UTI Credit Risk Fund Direct - Growth

• NAV: Rs. 19.75

• AUM: Rs. 261.79 Crores

• 1-Month Returns: 0.67%

• 3-Month Returns: 1.57%

• 1-Year Returns: 8.30%

• 3-Year Returns: 8.31%

• 5-Year Returns: 10.13%

The UTI Credit Risk Fund offers dependable performance across different time frames. It has delivered consistent returns of 8% to 10% annually, indicating a balanced approach toward credit and duration risk.

Its moderate AUM of Rs. 261.79 crores allows effective risk management, making it a dependable choice for those seeking predictable income and capital safety.

Nippon India Medium Duration Fund - Direct Bond Option Growth

• NAV: Rs. 17.45

• AUM: Rs. 121.65 Crores

• 1-Month Returns: 0.69%

• 3-Month Returns: 1.24%

• 1-Year Returns: 10.66%

• 3-Year Returns: 9.12%

• 5-Year Returns: 9.60%

This fund offers a solid balance between risk and return. With 1-year returns of 10.66% and 5-year cumulative gains of 9.60%, it demonstrates stability over market cycles. Its focus on medium-term debt instruments helps achieve consistent returns without excessive volatility.

The smaller AUM of Rs. 121.65 crores allows for active management and timely portfolio adjustments, ensuring the fund remains responsive to interest rate trends.

Also Read: Top Hybrid Mutual Funds for Investment in India (2025 Guide)

Final Thoughts

Debt mutual funds remain an essential part of a well-diversified portfolio, especially when market volatility and interest rate fluctuations continue to impact investment choices. Mutual funds like Bank of India Credit Risk Fund and DSP Credit Risk Fund have delivered strong long-term performance. At the same time, Aditya Birla Sun Life Medium Term Plan Fund and Bank of India Short Term Income Fund have proven to be consistent performers.

These funds collectively offer a mix of safety, stability, and steady growth. By choosing the right combination of short-term, medium-term, and credit risk funds, investors can achieve balanced and reliable returns without exposing their capital to excessive risk.

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FAQs

1. What are Debt Mutual Funds?
Debt Mutual Funds invest in fixed-income instruments such as government bonds, corporate bonds, and money-market securities to provide stable, predictable returns.

2. Are Debt Funds safer than Equity Mutual Funds?
Yes, Debt Funds are generally safer than equity funds as they focus on fixed-income assets, though they still carry some risks like credit and interest rate risk.

3. Which Debt Mutual Funds performed best in 2025?
Funds like DSP Credit Risk Fund, Aditya Birla Sun Life Medium Term Plan Fund, and Bank of India Credit Risk Fund delivered strong and consistent performance in 2025.

4. How long should one stay invested in Debt Mutual Funds?
The ideal investment horizon depends on the fund type — short-term funds suit 1–3 years, while medium-duration and credit risk funds work best for 3–5 years.

5. Can Debt Mutual Funds replace Bonds in a portfolio?
Debt Mutual Funds can complement or even replace Bonds for investors seeking liquidity, diversification, and professional management with stable returns.