Debt fund Sharpe ratios: low duration 1.53, gilt −0.13

What the number measures

The Sharpe ratio asks how much return a fund delivered above a risk-free rate for each unit of volatility it carried. We compute it over the trailing three years of daily NAVs with a 6.5% risk-free rate. Higher is better; below zero means the fund returned less than that risk-free rate.

This post takes direct-plan growth schemes (segregated portfolios excluded), as of 3 November 2026, and ranks the median Sharpe of every debt, hybrid and equity category with at least ten funds that have three years of history. Equity categories were covered in our October look at Sharpe ratios in equity funds; this one puts them on the same ladder as debt and hybrids.

The full ladder

What stands out

Short-term debt tops the table. Low-duration funds carry very little volatility (a median of 0.5% a year in our data) while returning a median of about 7.2% over three years. A small gap above 6.5% divided by a tiny denominator gives a high ratio. That is arithmetic, not a signal that low-duration funds are the best funds.

Credit risk is second, with a caveat. Credit-risk funds had a median 3-year return of 8.7%, the highest of the debt categories we compared. The Sharpe ratio rewards that return but only measures day-to-day NAV volatility. A single default can cost a lot in one day and then drop out of the window, which is why the ratio is a poor guide to credit risk.

Long-duration debt sits at the bottom. Gilt funds returned a median of 6.2% over three years, below the 6.5% hurdle, with volatility of 3.2%, the highest in debt. Dynamic bond and medium-to-long-term funds, at 0.04 each, were only just above zero.

Equity categories bunch between 0.2 and 0.6. Mid cap led equity at 0.56, large cap was 0.32 and ELSS was lowest among equity at 0.24 (78 schemes). Within the 173 sectoral and thematic funds, the best Sharpe was 1.68 and the median 0.42: the category's range is far wider than its middle.

Multi-asset allocation looks different. At 0.76 it ranks above every pure-equity category, in line with the multi-asset result in our comparison with flexi-cap funds.

How to use it

• Rank inside a category, not across. A 0.9 Sharpe in a low-duration fund and a 0.9 in a mid-cap fund describe very different experiences.
• Pair it with the return. A high ratio on a 7% return is a smooth ride to an ordinary destination; a lower ratio on a higher return can still be worth the swings, depending on the goal.
• Mind the window. Three years is one market cycle. The ratio will move as old months drop out.

You can filter funds by Sharpe ratio and category on /screener, and read what each ratio means in Sharpe vs Sortino. This is a description of past data, not a recommendation.