What is the Potential Risk Class?
A debt fund can hold anything from government securities to low-rated corporate bonds, and its price can swing with interest rates. The Potential Risk Class tells you the worst the fund’s mandate allows on each of those two risks. SEBI requires every debt fund to be placed in one of nine cells, and the AMC must disclose that class.
The cell is built from two questions:
- Credit risk: how likely is it that a bond issuer fails to pay interest or principal? It is rated Relatively Low, Moderate or Relatively High, based on the credit quality of the fund’s holdings.
- Interest rate risk: how much does the fund’s value move when interest rates change? It is rated the same three ways, and it follows the fund’s duration.
Rows are credit risk (A, B, C) and columns are interest rate risk (I, II, III). A fund labelled A-I has the lowest ceiling on both risks, and C-III has the highest on both.
The nine classes
Each cell is coloured by the severity of the matching riskometer level, from green (Low) to red (Very High). The number in each cell is how many direct-plan debt funds in the Punji database currently sit in that class.
INTEREST RATE RISKMODERATE
INTEREST RATE RISKHIGH
INTEREST RATE RISKLOW
CREDIT RISK
A-I
Low
47 funds
A-II
Low
19 funds
A-III
Moderate
101 funds
CREDIT RISK
B-I
Moderate
31 funds
B-II
Moderately High
7 funds
B-III
High
33 funds
CREDIT RISK
C-I
Moderately High
0 funds
C-II
High
0 funds
C-III
Very High
1 funds
| Class | Credit risk | Interest rate risk | Riskometer | Funds |
|---|---|---|---|---|
| A-I | Relatively Low | Relatively Low | Low | 47 |
| A-II | Relatively Low | Moderate | Low | 19 |
| A-III | Relatively Low | Relatively High | Moderate | 101 |
| B-I | Moderate | Relatively Low | Moderate | 31 |
| B-II | Moderate | Moderate | Moderately High | 7 |
| B-III | Moderate | Relatively High | High | 33 |
| C-I | Relatively High | Relatively Low | Moderately High | 0 |
| C-II | Relatively High | Moderate | High | 0 |
| C-III | Relatively High | Relatively High | Very High | 1 |
Where Indian debt funds actually sit
Of the 239 debt funds with a disclosed class, the most common is A-III with 101 funds (42.3%), a low credit risk class with high interest rate risk. Funds here hold very safe issuers, but their price can still move a lot when rates change. 2 of the nine cells are empty: C-I and C-II. Only one fund sits in the high credit risk row, so in practice almost all of the debt fund universe is in the low and moderate credit risk rows.
The class describes a ceiling, not the fund’s current risk. A fund in B-III is allowed to hold moderately risky issuers and long-duration bonds, even if today’s portfolio is safer. Check the fund’s actual credit quality and yield to maturity for what it holds now.
Reading the class together with the riskometer
Each class maps to a fixed riskometer level, so the PRC also tells you the riskometer the AMC must show. A-I and A-II are Low, A-III and B-I are Moderate, B-II and C-I are Moderately High, B-III and C-II are High, and C-III is Very High. Note that the two risks do not weigh equally: a fund with the safest credit rating but long duration (A-III) is rated Moderate, because rate moves alone can cause losses.
WHAT THIS MEANS FOR YOU A debt fund is not risk-free just because it holds bonds. Read the class first: if it sits in the right-hand column (high interest rate risk), expect its NAV to move noticeably when rates change, even with top-rated issuers. If it sits in the bottom row (high credit risk), the danger is a default, not rate moves. Choose the class that matches how long you will stay invested and how much volatility you can accept.
METHODOLOGY Class definitions follow SEBI’s Potential Risk Class matrix as disclosed by each AMC. Fund counts as of 2026-10-25, from the Punji fund database (D1 funds_v2), covering direct-plan schemes with a disclosed class. Not investment advice.