The number
The best-paying debt funds over the last year were also the ones that held the shortest paper and moved the least. The median ultra-short duration fund returned 6.53% in the year to 1 October 2026, the median money market fund 6.52% and the median liquid fund 6.47%. The median gilt fund returned 2.45% and the median long-term fund 1.26%.
All figures are medians for the Direct plan, Growth option, computed from daily NAVs to 1 October 2026. Returns of a year or more are compounded annual rates.
The ladder
| Category | Funds (1 yr) | 1-year | 3-year (a year) | Volatility | Worst 3-yr fall |
|---|---|---|---|---|---|
| Ultra Short Duration | 26 | 6.53% | 7.23% | 0.37% | 0.08% |
| Money Market | 25 | 6.52% | 7.37% | 0.42% | 0.15% |
| Liquid | 50 | 6.47% | 6.94% | 0.17% | 0.01% |
| Low Duration | 23 | 6.20% | 7.34% | 0.50% | 0.22% |
| Floating Interest Rate | 12 | 6.09% | 7.55% | 0.81% | 0.47% |
| Medium Duration | 12 | 5.98% | 7.65% | 1.25% | 0.74% |
| Overnight | 41 | 5.25% | 6.05% | 0.11% | 0.00% |
| Short Duration | 22 | 5.15% | 7.37% | 0.97% | 0.53% |
| Corporate Bond | 21 | 4.78% | 7.18% | 1.15% | 0.63% |
| Banking and PSU | 20 | 4.75% | 7.05% | 1.07% | 0.63% |
| Medium to Long Term | 13 | 3.91% | 6.62% | 2.09% | 1.68% |
| Dynamic Bond | 22 | 3.91% | 6.81% | 2.06% | 1.71% |
| Gilt | 25 | 2.45% | 6.20% | 3.11% | 3.59% |
| Long Term | 11 | 1.26% | 5.93% | 4.00% | 5.12% |
Three things the table shows
One year and three years tell different stories. Over one year the ladder is steep: 5.3 points separate the ultra-short median from the long-term median. Over three years the same categories are packed into 1.7 points, from 5.93% to 7.65%, and the medium duration median is first. The categories that lagged this year were not far behind over the longer window.
Risk rises with duration, but return did not. Volatility climbs from 0.11% for overnight funds to 4.00% for long-term funds, and worst falls climb with it, from nothing to 5.12%. For the last twelve months the extra risk was not paid.
Overnight is the safest, not the highest. Overnight funds' one-year median (5.25%) is 1.2 points below liquid funds (6.47%) and 1.3 below ultra-short funds. Over three years the gap to liquid funds is 0.9 points. Overnight funds hold one-day paper, so their returns follow the overnight rate with almost no variation (volatility 0.11%).
Where funds within a category disagree
Medians hide ranges. The one-year returns of gilt funds ran from -0.01% to 7.42%, and of dynamic bond funds from 0.48% to 6.89%. Within the medium duration category the best fund returned 8.42% and the weakest 3.26%. In liquid and ultra-short funds, by contrast, the middle of the category is tight and the choice between funds is mostly a question of cost and size.
Reading this
The shape of the ladder is not a prediction. It reflects what happened to bond prices over twelve months: the funds that hold longer bonds absorbed price moves, and the funds that hold paper maturing in weeks did not. A different year would reorder the middle of the table.
For close-ups of three of these categories, see overnight vs liquid funds, short-duration vs corporate bond funds and dynamic bond fund returns.
Returns are historical and computed from NAVs; they are not a forecast. Past returns do not indicate future performance.
Frequently asked questions
Which debt fund category returned the most over the last year?
By median one-year return to 1 October 2026 (Direct plan, Growth option), ultra-short duration funds came first at 6.53%, followed by money market funds (6.52%) and liquid funds (6.47%). The best single fund in the medium duration category made 8.42%.
Why did gilt funds return less than liquid funds?
The median gilt fund returned 2.45% over the year against 6.47% for liquid funds. Funds holding long government bonds move with bond prices and had a median worst fall of 3.59% over three years; liquid funds' worst fall was about 0.01%.
Are overnight funds the best-paying safe option?
No. The median overnight fund returned 5.25% in the year, about 1.2 points less than the median liquid fund (6.47%), although its worst three-year fall was zero.
This is commentary on published data, not investment advice. WealthTicker is not a SEBI-registered adviser or distributor. Figures are as of the dates stated and can be revised by their source.
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