How Credit risk works
Even before a default, a downgrade or widening credit spread can reduce a bond's market value. Government bonds remove most default risk but retain interest-rate risk.
An example
If one issuer is 8% of a debt portfolio and suffers a severe loss, that position can materially reduce the fund NAV despite the rest of the book performing normally.
Why it matters for your family
Check issuer concentration and credit quality together. A slightly higher yield may be compensation for a risk that does not fit money needed soon.
Questions people ask
- What does Credit risk mean?
- Credit risk is the chance that a borrower or bond issuer fails to make promised interest or principal payments, or is downgraded.
- Why does Credit risk matter for a family?
- Check issuer concentration and credit quality together. A slightly higher yield may be compensation for a risk that does not fit money needed soon.
- Where can I verify information about Credit risk?
- Start with SEBI Investor, linked on this page, and the current official document for the product or tax year involved.