One category, two kinds of fund
A banking and PSU debt fund lends mainly to banks, public sector companies and public financial institutions: SEBI requires at least 80% of the portfolio in that kind of paper. What it does not set is how long the paper should be. This post compares four funds, from Kotak, Franklin Templeton, UTI and LIC MF, and that one choice explains most of what separates them.
All figures are for the Direct plan, Growth option, from daily NAVs to Friday 9 October 2026. Returns over a year are compounded annual rates. Expense ratios are the latest in AMFI's TER disclosure; assets are AMFI's average for July to September 2026, all plans.
The numbers
| Fund | Expense ratio | Assets (₹ crore) | 1 year | 3 years | 5 years | 10 years | Volatility | Worst 3-year fall |
|---|---|---|---|---|---|---|---|---|
| UTI | 0.24% | 1,449 | 5.98% | 7.58% | 7.78% | 6.47% | 0.77% | 0.41% |
| Franklin India | 0.23% | 577 | 5.93% | 7.50% | 6.48% | 7.20% | 0.99% | 0.62% |
| LIC MF | 0.28% | 1,755 | 4.86% | 7.35% | 6.29% | 6.96% | 1.07% | 0.59% |
| Kotak | 0.40% | 4,928 | 4.82% | 7.33% | 6.41% | 7.27% | 1.15% | 0.63% |
| Median of 20 funds | 4.51% | 7.13% | 6.22% | 1.06% |
Over one year UTI and Franklin India are first and second of the 20 funds in the category; LIC MF is fifth and Kotak sixth. Over three years these four are the top four.
| Fund | 2022 | 2023 | 2024 | 2025 | 2026 to 9 Oct |
|---|---|---|---|---|---|
| UTI | 10.57% | 7.01% | 7.92% | 8.04% | 4.76% |
| Franklin India | 3.62% | 7.20% | 8.05% | 8.28% | 4.46% |
| LIC MF | 3.63% | 7.07% | 8.32% | 8.03% | 3.82% |
| Kotak | 4.03% | 7.24% | 8.46% | 8.06% | 3.46% |
What they held on 30 September
| Fund | Short-term paper (A1+) | AAA bonds | Government | Average maturity | Yield to maturity | Yield minus expense ratio |
|---|---|---|---|---|---|---|
| UTI | 58.0% | 30.1% | 9.1% | 0.45 years | 6.95% | 6.71% |
| Franklin India | 43.2% | 34.4% | 12.9% | 2.66 years | 7.26% | 7.03% |
| LIC MF | 25.9% | 60.6% | 8.0% | 2.38 years | 6.99% | 6.71% |
| Kotak | 11.8% | 73.8% | 4.3% | 3.73 years | 7.51% | 7.11% |
From each house's September disclosure; the rest is cash and small holdings. Kotak and LIC MF state their yields; for UTI and Franklin India it is the holdings' yields weighted by size. Kotak gives a Macaulay duration of 2.62 years and LIC MF 1.80.
UTI's fund is, for now, close to a money market fund: about half of it is certificates of deposit from banks, NABARD and SIDBI maturing between January and March 2027. Kotak's is the opposite, three-quarters in AAA bonds.
What stands out
The short book won the year. UTI returned 5.98% and Kotak 4.82%, about ₹11,600 apart on ₹10 lakh. In the last three months, when NSE's 4–8 year government bond index lost 0.80% with interest included, UTI's fund made 1.66%, Franklin India's 1.32%, LIC MF's 0.83% and Kotak's 0.37%. The order is the same as the share of short-term paper each held. UTI vs Kotak shows the lines parting.
The long book yields more now. Kotak's portfolio yields 7.51%, or 7.11% after its 0.40% fee; UTI's 6.71% after fees. If rates hold or fall, the longer book earns more; if they rise, the shorter one holds up better, as it did this year. Neither outcome is a forecast.
UTI's long record has scars. Its NAV fell 2.22% on 22 January 2019, 6.70% on 30 April 2019 and 1.44% on 25 September 2019, on days when the other three funds barely moved, and it rose 6.15% on 6 May 2022. Those are not interest-rate moves. The 2022 day sits inside the five-year window: without it, the five-year return would be about 6.50% a year, not 7.78%. Take out all four days and the ten-year figure would be about 6.97% rather than 6.47%, level with LIC MF's.
Kotak is the biggest and dearest. It manages ₹4,928 crore, more than eight times Franklin India's ₹577 crore, and charges 0.40% against Franklin India's 0.23%. Kotak vs Franklin India puts the fee and the returns side by side.
Not everything is a bank or a PSU. Up to 20% can go elsewhere. Franklin India held 3.37% in two Jubilant group bonds rated AA, and Kotak 1.01% in MTNL paper rated AA+(CE). Everything else in the four books is AAA, A1+, sovereign, cash or small mandatory units in the Corporate Debt Market Development Fund.
The managers
Kotak's fund has been run by Deepak Agrawal since August 2008, with Dharmesh Thakar since 2022. Franklin Templeton's by Chandni Gupta and Anuj Tagra since March 2024. UTI's by Anurag Mittal since December 2021, which is after the 2019 fall. LIC MF's by Pratik Harish Shroff since September 2023 and Rahul Singh since October 2025. None charges an exit load.
What this does not tell you
It is a snapshot. UTI's short book is a current choice, not a rule; a fund can lengthen or shorten its portfolio within a month.
Low credit risk is not none. UTI's 2019 falls, on days its peers barely moved, are the reminder. The guide on credit risk and yield to maturity explains what the yield figure does and does not promise.
Tax is at your slab. Gains on debt funds bought after 31 March 2023 are taxed at your income-tax slab rate.
None of this is a recommendation. The remaining head-to-heads are UTI vs Franklin India, LIC MF vs UTI, LIC MF vs Franklin India and LIC MF vs Kotak. The banking and PSU fund page ranks all 20, our June look at the category has the earlier picture, and why bond fund prices fall when yields rise explains the maturity effect. The FD vs debt fund calculator compares either with a deposit.
Frequently asked questions
Which banking and PSU debt fund has the best returns?
To 9 October 2026, UTI's Direct Growth plan returned 5.98% in a year and 7.58% a year over three years, the best of 20 banking and PSU funds over both periods. Franklin India returned 5.93% and 7.50%, LIC MF 4.86% and 7.35%, and Kotak 4.82% and 7.33%.
Why did Kotak Banking and PSU Debt Fund lag over the last year?
It ran the longest portfolio of the four, with an average maturity of 3.73 years on 30 September 2026 against 0.45 years for UTI's. Longer bonds lose more when yields rise. In the three months to 9 October Kotak's fund made 0.37% and UTI's 1.66%.
Is a banking and PSU debt fund safe?
Its credit risk is low because SEBI requires at least 80% in debt of banks, public sector undertakings and public financial institutions. It still carries interest-rate risk and can hold up to 20% elsewhere: Franklin India's fund held 3.37% in AA-rated Jubilant group bonds on 30 September 2026.
This is commentary on published data, not investment advice. WealthTicker is not a SEBI-registered adviser or distributor. Figures are WealthTicker’s own calculations from public data — AMFI’s fund NAVs and disclosures, NSE’s index and FII/DII files, and the fund houses’ monthly portfolios (how we calculate). They are as of the dates stated and can be revised by their source.
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