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Market Intelligence › Basic Terminologies
A bond's rating, default risk, and where it hides in a portfolio
Published by The Retail Trader · JUL 25, 2026 · Mutual Funds & AMC
Besides duration, a debt fund carries another risk — whether the people who were lent the money will pay it back or not. This is called credit risk, and it behaves very differently from duration risk.
Duration risk shows up slowly — the NAV falls a little at a time. A credit event shows up suddenly — if one issuer defaults, the value of that holding can fall sharply in a single day.
That is why credit risk behaves like the tail risk of equity, not like the normal risk of a bond.
The fund's factsheet tells you this:
• Rating-wise breakup — how much is in the highest-rated papers.
• How much is concentrated in a single issuer or a single group.
• Yield to maturity — a YTM far higher than its peers is a warning.
• The portfolio's liquidity — whether those papers can be sold under stress.
The job of a debt allocation is to keep the portfolio stable, not to deliver extra return. If your debt fund is chasing equity-like returns, it is not doing in your portfolio the job it was kept for.
This article is educational only — it is not a buy or sell recommendation, makes no claim of guaranteed returns, and is not advisory. Rules, rates and mechanics are changed from time to time by the exchanges, SEBI and RBI, so verify every number yourself with your broker or an official source.