Best Credit Risk Mutual Funds 2025: Details Unlocked

You plan on investing your hard-earned money in 2025. The goal is clear. You want better returns than a fixed deposit. This is when people start exploring equity or debt mutual funds. But then you notice one category that promises slightly higher returns and lower risk as compared to equity. That is when credit risk mutual funds catch your attention.

The best credit risk mutual funds invest in lower-rated corporate bonds. Now these do have a comparatively higher risk, and so the returns are better too. But the question is, which are the best credit risk mutual funds in India?

Well, if you are an investor looking to explore the best credit risk mutual fund, then read this guide. Explore the top options and start investing with confidence. 

What Are Credit Risk Mutual Funds

Credit risk mutual funds are a type of mutual fund. These fall under the debt category. These funds invest mainly in corporate bonds. These bonds have lower credit ratings. Because the issuer has a higher chance of default compared to top-rated companies, they offer higher interest rates. This higher interest is what helps these funds aim for better returns than regular debt funds. However, returns depend heavily on the issuer’s ability to repay on time.

Features of Credit Risk Mutual Funds

• Focus on investing in low-rated debt instruments only.

• Minimum 65% allocation to the below AA-rated debt instruments.

• Higher return potential due to higher interest payouts.

• Actively managed with a strong focus on credit selection.

• Performance is more based on credit quality and not interest rate movements. 

Pros of Credit Risk Mutual Funds

• Offer higher return potential than traditional debt or even gilt funds.

• Can perform better than fixed deposits in stable credit conditions.

• Help diversify the debt portion of a portfolio.

• Offers better tax planning as compared to fixed deposits.

• Can go for both the lumpsum or SIP. 

• The expense ratio is low, and hence, better investing happens.

Cons of Credit Risk Mutual Funds

• Default risk is high if the issuer fails to pay.

• NAV can fall sharply during credit events.

• Not suitable for conservative or short-term investors.

• Requires high trust in the fund manager’s decisions.

Best Credit Risk Mutual Funds in India 2025

Now, when you are planning to invest in the best credit risk mutual funds in India 2025, it is important that you know all the options available to you. So, explore the list of the top performers and ease your process of choosing the mutual fund.

NOTE: This data is based on the reports as of 19 December 2025. It is important that you check all the details before investing.

Overview of Funds

1. Aditya Birla Sun Life Credit Risk Fund

This fund focuses on selective lower-rated corporate bonds. It aims to capture higher yield opportunities while spreading exposure across issuers to reduce concentration-related credit risk.

2. DSP Credit Risk Fund

DSP Credit Risk Fund is known for taking calculated credit calls. It tends to benefit during improving credit cycles, though returns can fluctuate when market sentiment weakens.

3. ICICI Prudential Credit Risk Fund

This fund with large AUM follows a diversified credit approach. It suits investors looking for measured exposure. This is not for those with aggressive yield chasing within credit risk funds.

4. Baroda BNP Paribas Credit Risk Fund

This fund follows a comparatively conservative manner. Credit selection is cautious. This can help limit downside risk during periods of stress in debt markets.

5. HDFC Credit Risk Debt Fund

HDFC Credit Risk Debt Fund focuses on disciplined credit evaluation. It prioritizes balance between income generation and capital protection. This does work on short-term return spikes.

6. SBI Credit Risk Fund

This fund takes selective exposure to lower-rated issuers. Performance is closely linked to credit recovery trends and how well issuers improve their financial strength.

7. HSBC Credit Risk Fund

HSBC Credit Risk Fund has shown strong phases of performance during favourable credit conditions. Returns depend heavily on timely recovery in corporate credit quality.

8. Axis Credit Risk Fund

Axis Credit Risk Fund emphasizes diversification across sectors and issuers. This approach aims to reduce the impact of any single credit event. This focuses on better overall fund performance.

9. Kotak Credit Risk Fund

Kotak Credit Risk Fund follows a cautious credit strategy. It focuses more on stability within the category. It is not highly aimed at aggressively chasing high-yielding instruments.

10. Nippon India Credit Risk Fund

This fund actively looks for turnaround opportunities in stressed credits. Proper diversification helps manage risk. But all the outcomes depend on issuer-level recovery.

Conclusion

Credit risk mutual funds can help boost debt returns when chosen carefully. They suit investors who understand credit cycles and can stay invested longer. Always compare portfolio quality, consistency, and fund management. If you want help selecting the right fund, explore expert-backed insights and tools on Rupeezy before investing.

FAQs

Are credit risk mutual funds safe?

They carry a higher risk than traditional debt funds but are safer than the equity funds.

Who should invest in credit risk mutual funds?

They are suitable for investors with moderate to high risk appetite and those looking for long-term.

Can credit risk funds deliver negative returns?

Yes, defaults or downgrades can impact NAV. It can lead to temporary or extended losses.

Are credit risk funds better than fixed deposits?

They may offer higher returns, but involve higher risk compared to fixed deposits.

What is the ideal holding period for credit risk funds?

Investors should stay invested for three to five years to manage volatility effectively.