Best Credit Risk Mutual Funds in India 2026: Top 10 & Guide
What Credit Risk mutual funds are, who should invest, key risks, and the top 10 funds with returns and risk data.
Credit risk funds are debt funds that deliberately hold lower-rated corporate bonds to earn higher yields. In return, they take on higher default risk and lower liquidity. This guide covers who should invest, benefits, risks, and the top 10 credit risk funds from our data.
Key takeaways
- Credit risk funds invest in lower-rated corporate debt, aiming for higher yields than high-rated debt funds.
- Under SEBI rules, they invest 65% of assets in bonds rated below AA.
- They carry high credit risk and lower liquidity, and returns are not guaranteed.
- They suit investors with a high risk appetite and a medium-term horizon.
- The top 10 funds below are ranked by an internal score, with return and risk numbers shown.
What are credit risk mutual funds?
Credit risk funds are debt funds that invest in low-rated corporate debt securities. Their objective is to generate higher returns by buying securities that offer higher yields than high-rated ones. Low-rated bonds carry a premium coupon to compensate for the default risk. Securities rated below AA are regarded as having high credit risk, and managers may add higher-rated securities to balance the portfolio.
Who should invest in credit risk mutual funds?
- Investors with a medium-term horizon who can accept greater risk.
- Investors who want better returns than other fixed-income options.
- Investors with a higher risk appetite. Those who prefer low-risk, stable schemes should look at other debt funds.
What should you consider before investing?
- Financial goal: these funds suit moderate-to-high risk tolerance and portfolio diversification.
- Expense ratio and exit load: both affect your final return.
- Historical data: review past performance in detail.
Advantages of credit risk mutual funds
- Higher return potential than other debt funds, because the underlying bonds pay premium coupons.
- Flexible investing by SIP or lump sum.
Risks of credit risk mutual funds
- Low liquidity: lower-quality bonds cannot be sold as easily, so liquidity is more limited than in funds holding high-quality paper.
- High credit risk: under SEBI rules, these funds invest 65% of assets in bonds rated below AA, so the investment carries a considerable level of default risk.
How are Credit Risk mutual funds taxed?
Gains from Credit Risk funds are subject to tax on gains, with the rules depending on the type of debt fund and the date of purchase. The rates and holding-period rules depend on the fund type and can change, so check the current rules or speak to a tax advisor before you invest.
Top 10 Credit Risk mutual funds ranked by an internal score
These are the top 10 Credit Risk funds from our data, ranked by Invo Wealth's internal fund-quality score. The score itself is not shown, only the return and risk numbers behind it. A "--" means the fund has not completed that period or the data is unavailable. Some entries are different plan or option variants of the same scheme (for example Direct vs Regular, or Growth vs Bonus), so their figures can look similar.
Returns across 6 months to 5 years
Performance data as of 5 September 2026.
| Fund | 6M CAGR | 1Y CAGR | 3Y CAGR | 5Y CAGR |
|---|---|---|---|---|
| BANK OF INDIA CREDIT RISK FUND | 18.13% | 17.37% | 9.68% | 27.37% |
| DSP Credit Risk Fund | 18.37% | 10.39% | 15.92% | 12.45% |
| HSBC Credit Risk Fund | 6.52% | 6.02% | 10.97% | -- |
| Aditya Birla Sun Life Credit Risk Fund | 9.01% | 12.12% | 12.23% | 9.99% |
| Nippon India Credit Risk Fund (Existing Number of Segregated Portfolios - 1) - Regular Plan - Institutional Plan-Growth Option | 9.12% | 8.35% | 8.54% | 7.41% |
| Baroda BNP Paribas Credit Risk Fund (scheme has Two segregated portfolios) | 5.52% | 5.90% | 7.41% | 8.21% |
| Nippon India Credit Risk Fund (Existing Number of Segregated Portfolios - 1) - Regular Plan - Growth option | 7.12% | 7.30% | 8.16% | 7.14% |
| ICICI Prudential Credit Risk Fund | 8.47% | 8.11% | 8.50% | 7.34% |
| UTI - Credit Risk Fund. | 6.33% | 6.22% | 7.16% | 9.45% |
| Franklin India Credit Risk Fund - Growth | 0.00% | 0.00% | 0.00% | 3.59% |
Risk and consistency metrics
| Fund | ISIN | Volatility | Max drawdown (3Y) | Sortino ratio |
|---|---|---|---|---|
| BANK OF INDIA CREDIT RISK FUND | INF761K01DH6 | 5.27% | -0.21% | 7.14 |
| DSP Credit Risk Fund | INF740K01599 | 9.23% | -1.82% | 7.06 |
| HSBC Credit Risk Fund | INF917K01130 | 7.90% | -0.41% | 7.22 |
| Aditya Birla Sun Life Credit Risk Fund | INF209KA1K47 | 4.14% | -0.43% | 6.65 |
| Nippon India Credit Risk Fund (Existing Number of Segregated Portfolios - 1) - Regular Plan - Institutional Plan-Growth Option | INF204K01FT7 | 1.03% | -0.38% | 2.91 |
| Baroda BNP Paribas Credit Risk Fund (scheme has Two segregated portfolios) | INF955L01FP0 | 0.93% | -0.31% | 0.77 |
| Nippon India Credit Risk Fund (Existing Number of Segregated Portfolios - 1) - Regular Plan - Growth option | INF204K01FQ3 | 0.97% | -0.40% | 2.17 |
| ICICI Prudential Credit Risk Fund | INF109K01GU4 | 1.41% | -0.40% | 1.72 |
| UTI - Credit Risk Fund. | INF789F01QZ1 | 1.01% | -0.46% | 0.27 |
| Franklin India Credit Risk Fund - Growth | INF090I01ET7 | -- | -- | -- |
Pay particular attention to drawdown and volatility here, because a single default can cause a sharp drop in NAV.
How to invest in Credit Risk mutual funds
You can invest in these funds using the Invo Wealth app. Sign up, get complete portfolio insights and start investing in mutual funds that actually suit you.
Conclusion
Credit risk funds offer higher yields in exchange for default risk and weaker liquidity. They are for investors who understand and can accept that risk.
Frequently asked questions
What is a credit risk fund?
It is a debt fund that invests in lower-rated corporate debt securities to earn higher returns than funds holding high-rated bonds, accepting higher credit risk.
Why would someone invest in a credit risk fund?
To seek potentially higher returns than other debt funds for short to medium-term goals, in exchange for taking more risk.
Are credit risk funds safe?
No. They carry a high amount of risk and can be very volatile, because lower-rated issuers may default on interest or principal.
Who should invest in credit risk funds?
Investors with a medium-term horizon, a high risk appetite and a wish for better returns from fixed income.
How can I invest in credit risk mutual funds?
You can invest through a SIP or a lump sum. To invest in these funds, you can use the Invo Wealth app: sign up, get portfolio insights and start investing.
Mutual fund investments are subject to market risks; read all scheme-related documents carefully. This article is for education only and is not investment advice. Past performance does not guarantee future returns. Invo Wealth is an AMFI-registered mutual fund distributor (ARN-368528).