Credit risk is the chance that a bond's issuer pays interest or principal late or not at all, or has its credit rating cut.
When a debt fund buys a company's bonds, it is lending to that company and depends on it to pay interest and repay the principal on time. Credit risk is the chance that it does not.
It reaches a fund's NAV in two ways:
Ratings run from AAA, the highest, through AA, A and BBB. Bonds rated below BBB are below investment grade, and D means default. Bonds issued by the Government of India carry no credit risk in practice.
Lower-rated bonds pay more interest to make up for the risk, so a fund holding them shows a higher YTM. Credit risk funds, a SEBI category, keep at least 65% in bonds rated AA or below, excluding AA+.
If a holding defaults, the fund house may move it into a segregated portfolio.
Each fund page has its returns, risk, costs, managers and everything it holds.