When investors often think of mutual funds, equity funds are the first to come to mind. Equity funds can deliver good returns over the long term, but they are highly volatile. Over the past year, we’ve seen multiple spells of volatility in the stock market.
In contrast, debt mutual funds have always been considered a safe bet because they invest mostly in fixed-income securities such as government bonds, corporate bonds, and money market instruments. This means they aim to provide investors with stability and regular income. However, over the past year, the debt category has surprised everyone. Several debt mutual funds delivered high double-digit returns, which is unusual for this category.
The three debt funds we’re discussing today — DSP Credit Risk Fund, HSBC Credit Risk Fund, and Aditya Birla Sun Life Credit Risk Fund — are all credit risk funds.
Let’s deep dive into each debt mutual fund scheme.
#1. DSP Credit Risk Fund
DSP Credit Risk Fund is an open-ended debt scheme, launched on January 1, 2013. Since its launch, it has delivered an average return of 9.04%. The fund tracks the CRISIL Credit Risk Debt B-II Index as its benchmark. The fund falls under the Moderately High risk category. As of August 31, 2025, the fund manages assets worth Rs 207 crore with an expense ratio of 0.40%.
Annualised returns
1 year: 22.62%
3 years: 15.58%
5 years: 12.28%
10 years: 8.78%
#2. HSBC Credit Risk Fund
HSBC Credit Risk Fund is an open-ended debt scheme, launched on January 1, 2013. Since inception, it has generated an average return of 8.30%. The fund’s benchmark is the NIFTY Credit Risk Bond Index B-II, and it is classified under the Moderately High risk category. As of August 31, 2025, the fund manages assets worth Rs 584 crore with an expense ratio of 0.96%.
Annualised returns
1 year: 21.38%
3 years: 11.97%
5 years: 9.49%
10 years: 8.08%
#3. Aditya Birla Sun Life Credit Risk Fund
Aditya Birla Sun Life Credit Risk Fund is an open-ended scheme from Aditya Birla Sun Life Mutual Fund. The fund was launched on April 17, 2015. Since launch, it has delivered an average return of 9.18%. The fund tracks the CRISIL Credit Risk Debt B-II Index as its benchmark. It falls in the Moderately High risk category. As of August 31, 2025, it manages assets worth Rs 1,033 crore with an expense ratio of 0.67%.
Annualised returns
1 year: 17.04%
3 years: 11.45%
5 years: 10.27%
10 years: 9.18%
(Data: Value Research)
Credit risk funds are a segment of the debt category that invests mostly in low-rated corporate bonds. These bonds typically offer high interest rates because they carry a higher risk of default.
Benefits – If a company doesn’t default and pays interest and principal on time, investors receive returns much higher than regular debt funds. This is why credit risk funds have delivered double-digit returns this year.
Risk – If a company fails to repay its debt, investors could suffer significant losses. This means these funds are as risky as the name suggests.
Other debt categories
Besides credit risk funds, there are several other categories of debt funds. Such as:
Liquid, Ultra Short, and Overnight Funds – Extremely safe, for very short periods.
Short Duration and Low Duration Funds – For periods of 1 to 3 years, relatively stable.
Medium Duration and Corporate Bond Funds – For medium duration, with slightly higher interest rate risk.
Gilt Funds – Invest in government-issued bonds; no risk of default, but NAV is affected by interest rate changes.
Dynamic Bond and Target Maturity Funds – Adapt to the interest rate cycle; a bit more complex, but a good option for the long term.
Equity vs debt funds
Equity funds are generally considered high-risk, high-return. While debt funds can be described as low-risk, moderate-return. However, the past year has proven that debt funds, chosen at the right time and in the right category, can often outperform equities.
Who should invest?
If you want stability and low volatility, general debt categories like short duration, corporate bond, or gilt funds may be right for you.
But if you’re willing to take a little more risk and are looking for higher returns, credit risk funds may be an option.
Disclaimer: The above content is for informational purposes only. Mutual Fund investments are subject to market risks. Please consult your financial advisor before investing.