According to data from Value Research, the top-performing debt fund categories over the past year include:
| Category | Returns (%) |
|---|---|
| Gilt with 10-Year Constant Duration | 11.1% |
| Long Duration | 11.0% |
| Gilt | 10.2% |
| Credit Risk | 9.9% |
| Dynamic Bond | 9.6% |
| Medium to Long Duration | 9.4% |
| Medium Duration | 9.2% |
These returns rival those of many equity funds and come at a time when investors are increasingly looking for safer havens amid market volatility.
Debt funds haven’t just performed in hindsight — they’ve continued to rally in 2025. Year-to-date (YTD) returns as of mid-April show:
| Category | Return (%) |
|---|---|
| Gilt (10-year constant) | 4.49% |
| Credit Risk | 4.29% |
| Gilt | 4.09% |
| Long Duration | 4.05% |
| Dynamic Bond | 3.76% |
| Medium to Long Duration | 3.72% |
| Medium Duration | 3.53% |
Only gold (YTD: 23.39%) and silver (YTD: 11.80%) funds have outperformed these debt categories this year.
The strong showing in the debt market is closely tied to the Reserve Bank of India’s recent monetary policy decisions. In a bid to support growth amid global uncertainty and softening inflation, the RBI has cut the interest rates twice in 2025 (25 basis points each) bringing the repo rate down from 6.5% to 6%. RBi has also Shifted its stance from ‘neutral’ to ‘accommodative’. This move opens the door for further rate cuts — a key tailwind for debt fund investors.
Bond prices move ahead of rate cuts, and we’re already seeing that play out, say fund managers.
The central bank has also lowered its GDP growth forecast to 6.5% for FY26 and expects inflation to ease further to 4%, giving it room to stay accommodative.
Experts believe the answer to whether you should invest in these funds right now could be yes. Falling interest rates typically boost bond prices, especially in long-duration strategies. And many of these funds had already started gaining before the rate cuts kicked in, reflecting market anticipation.
With equity markets facing bouts of volatility and rate-sensitive instruments showing potential, debt funds are offering a sweet spot of relative safety and attractive returns.
(Edited by : Akanksha Upadhyay)
