Debt Fund Categories
Credit Risk Funds
At least 65% in bonds rated below AA+ for extra yield.
Updated 30 September 2026 · SEBI rules as of 2026
SEBI mandate
≥ 65% below highest-rated instruments
Debt Fund CategoriesOverview
Credit risk funds invest at least 65% in lower-rated (below AA+) corporate bonds. Higher yields come with default and downgrade risk; side-pocketing may be used if an issuer defaults.
| Particular | Details |
|---|---|
| SEBI mandate | ≥ 65% below highest-rated instruments |
| Duration / maturity | Varies |
| Typical risk | High |
| Tax (bought on/after 1 Apr 2023) | Gains taxed at slab rate, no LTCG benefit |
| Suited for | Only for investors who understand credit risk |
Risks in debt funds
| Risk | Meaning |
|---|---|
| Interest-rate risk | NAV falls when rates rise — higher for long duration |
| Credit risk | Issuer default or downgrade |
| Liquidity risk | Difficulty selling bonds in stress |
| Reinvestment risk | Lower yields when bonds mature |
What to check
| Metric | Meaning |
|---|---|
| Yield to maturity (YTM) | Indicative gross return if held |
| Modified duration | Sensitivity to rate changes |
| Average maturity | Longer = more rate risk |
| Credit quality | % in AAA/sovereign |
| Expense ratio | Big impact on debt returns |
| Potential Risk Class (PRC) matrix | SEBI grid of interest-rate and credit risk |
Frequently asked questions
Are debt funds risk-free?
No. They carry interest-rate and credit risk, though usually far lower volatility than equity.
How are debt funds taxed now?
Units bought on or after 1 April 2023 are taxed at your slab rate regardless of holding period.
Mutual fund investments are subject to market risks; read all scheme-related documents carefully. Information is educational and may change with SEBI / tax rules — verify with the AMC, AMFI or SEBI. FinancePortal is not an investment adviser.