Credit risk funds returned 6.50%, but read the jumps

Twelve funds, a wide spread

In the year to Friday 22 May 2026, the median credit risk fund returned 6.50%. The median corporate bond fund returned 3.48%.

A credit risk fund must keep at least 65% of its money in corporate bonds rated AA or lower, outside the top two grades of AAA and AA+. It is paid extra interest to take the chance that an issuer misses a payment. A corporate bond fund sits at the other end: at least 80% in bonds rated AA+ or above.

The figures come from daily NAVs dated 22 May 2026, Direct plan, Growth option: 12 credit risk funds, all old enough for a one-year figure, and 21 corporate bond funds.

Side by side

On these medians the credit risk funds earned more over every period of a year or longer, and fell less in the last month. That is not the order the names suggest, and the next two sections explain most of it.

The jumps

Credit risk funds sometimes write down a bond whose issuer is in trouble, and sometimes recover money on it later. A recovery typically shows up as a one-day jump in the NAV. Four of the 12 funds had at least one day in the past year on which the NAV rose more than 1%.

The jumps were 4.94% and 5.38% for Bank of India, 3.30% for Aditya Birla Sun Life, 5.68% for DSP and 1.21% for Invesco. We have not traced which holdings they came from.

Take them out and the median across the 12 funds falls from 6.50% to about 5.83%. Bank of India's fund drops from first to the middle of the table, and DSP's to last.

That matters for reading any ranking of this category. A large one-year figure is often a single event, and it says little about what the fund earns on an ordinary day.

The month bonds fell

The last month was a bad one for bonds in general. NSE's Nifty Composite G-sec Index lost 0.74% in the month to 22 May, including interest, and the clean price of the 10-year benchmark bond index fell 1.23%. Falling bond prices mean rising yields.

All 21 corporate bond funds lost money in that month. Ten of the 12 credit risk funds did too, but the median lost about a third as much: 0.15% against 0.44%.

One reading that fits these numbers is that credit risk funds hold shorter bonds on the whole, so a rise in yields hurts their prices less, while their higher interest makes up more of the loss. The three-year drawdowns point the same way: a median worst fall of 0.41%, against 0.63% for corporate bond funds. What a credit risk fund carries instead is default risk, which none of these numbers measures until a default happens.

Where the year leaves the categories

Without the jumps, the median credit risk fund's year is about 5.8%, still ahead of the median corporate bond fund's 3.48% and of the median short duration fund's 4.20%. The median liquid fund returned 6.21% over the year to 24 May.

So in a year when longer bonds fell, liquid funds beat most of the bond categories, and the credit risk funds got ahead of them only with their recoveries counted.

The bottom of the credit risk table, Bandhan Credit Risk at 4.16% and HSBC Credit Risk at 5.16%, had no jump days in the year.

What this does not tell you

Default risk does not show until it happens. A credit risk fund's NAV can drop several percent in a day if an issuer defaults. A year without one says nothing about next year.

Recoveries are not repeatable. A jump is usually money coming back from an earlier loss, so the loss and the recovery belong together. The return on a fund over the full cycle is what counts.

Past returns don't predict. This is twelve funds over one year.

Tax is at your slab. Gains in a debt fund bought on or after 1 April 2023 are taxed at your income-tax slab rate.

Where to go from here

The credit risk fund and corporate bond fund pages list every scheme. The guide to credit risk and YTM explains the trade, and when a debt fund collapsed shows what the downside looks like.

For the corporate bond side in more detail, see short duration vs corporate bond funds in April.