Credit risk
The chance that a borrower fails to pay interest or repay a bond on time.
Credit risk is the chance a borrower doesn’t pay you back in full or on time. Government bonds carry almost none. Company bonds are rated by credit rating agencies, and lower ratings pay higher interest to make up for higher risk. In a debt fund, one default can pull the NAV down. See debt funds explained and when a bond defaults in your debt fund.
Questions people ask
What is credit risk?
Credit risk is the chance that the borrower behind a bond, such as a company, misses interest payments or can't repay the loan. If it happens, the bond's value drops and a fund holding it takes a loss.
What is a credit risk fund?
It's a SEBI debt fund category that must keep at least 65% of its assets in company bonds rated AA or lower. These pay more interest because the borrowers are riskier, so the fund can earn more but can also lose more if one defaults.
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