Unlike Savings bank account interest or a bank FD, debt mutual funds are market-linked products that do not offer assured returns. Debt mutual funds including liquid funds do have some interest rate risk and credit or default risk. Yet, liquid funds have been offering consistent returns historically. To understand how, let us compare the yearly returns of liquid funds with gilt funds, since both these categories are low on credit risk. Gilt funds invest in Govt. of India bonds, which have negligible risk of default. Liquid funds on the other hand predominately invest in top quality (high credit rating) instruments, which are very short term in nature, thus mitigating credit risk to a large extent.