Short-term debt fund ladder: overnight 5.25%, liquid 6.46%

The ladder

Funds that hold debt for very short periods sit on a ladder, from one-day paper at the bottom to a year or so at the top. Their returns mostly follow how long they lend for. To 19 October 2026 the median one-year return was 5.25% for overnight funds and 6.46% for liquid, money market and ultra-short duration funds. Low duration funds sat between at 5.97%.

Each figure is the median of Direct plan, Growth option funds with more than 400 NAV points of history. Returns under a year are absolute; the three-year figure is annualised.

What stands out

Liquid, money market and ultra-short funds are tied over a year. All three have a median of 6.46%, to the second decimal place. Over three months, money market funds (1.67%) led liquid funds (1.57%) by 0.10 points, and ultra-short funds (1.61%) sat between.

Overnight funds earned the least. They lend for a day at a time, so their return tracks the overnight rate with little else added. A median of 5.25% is 1.21 points below liquid funds. Over three years the gap was 0.89 points a year (6.02% against 6.91%).

Low duration was the weak point this year. It had the lowest one-month median of any category at 0.29%, and its one-year median of 5.97% was 0.49 below liquid funds. Yet over three years it was second only to money market funds, at 7.29% a year. A fund holding paper for six to twelve months has more sensitivity to changes in yields, so it can lose ground in a stretch when yields rise and gain it back when they fall. The 2026 pattern here fits that, though a median alone cannot show the cause.

Over three years the order flipped. Money market (7.33%), low duration (7.29%) and ultra-short (7.20%) all beat liquid (6.91%) and overnight (6.02%). Longer paper has earned more over that stretch, with the one-year result the exception for low duration funds.

Why the order matters less than the spread

The distance between the top and the bottom rungs is 1.2 percentage points over a year. On ₹10 lakh held for twelve months that is roughly ₹12,000 before tax, on these medians. Individual funds differ from their category median, and fees come out of the same return.

What each category holds

• Overnight: securities maturing the next business day. No credit risk to speak of and almost no interest-rate risk.
• Liquid: debt and money market instruments up to 91 days.
• Money market: instruments up to one year.
• Ultra short duration: portfolio duration of three to six months.
• Low duration: portfolio duration of six to twelve months.

These are SEBI's definitions. A higher category carries somewhat more sensitivity to rate changes and more exposure to the credit quality of what it holds, and the return table above is the compensation actually earned in the window, not a promise of it.

Caveats

• Medians hide funds. Each category has a range, and a few young funds were excluded by the history filter.
• Short-term gains on these funds are taxed at slab rates, which applies to all five categories and affects the after-tax comparison; how debt and hybrid funds are taxed explains the rule.
• The figures are a snapshot. A month earlier the order of the one-month column could have been different.

For the same categories in more depth, see liquid fund returns, money market fund returns, ultra-short and low-duration fund returns and the earlier overnight versus liquid comparison.