Lesson 42 of 50 for advisers · Debt fund risk: the PRC grid · 4 min read · Reviewed 13 Nov 2026
A 3 × 3 grid every debt scheme sits in, by its maximum interest-rate risk (Class I: Macaulay duration up to 1 year; II: up to 3 years; III: any) and maximum credit risk (A, B or C, by a credit risk value from AAA down). Moving to a riskier cell is a fundamental change, and unitholders are told.
Every debt scheme picks one cell of a 3 × 3 grid. Rows are interest-rate risk by maximum Macaulay duration: up to 1 year, up to 3 years, or any.
Columns are credit risk: Class A holds the safest paper, B a little less safe, C the riskiest. Government securities score highest, then AAA, AA+ and so on down.
A scheme that moves to a riskier cell is changing a fundamental attribute, and unitholders are told by SMS.
A credit risk fund holds at least 65% in bonds rated AA and below, excluding AA+. A corporate bond fund holds at least 80% in AA+ and above.
Key idea: If a bond defaults, a fund may side-pocket it: investors get matching units in a separate portfolio that can’t be sold until it recovers.
Try the short quiz on this page to check what stuck.
Ultra short 3–6 months, the new ultra short to short 6–12 months, short 1–3 years, medium 3–4 years, medium to long 4–7 years and long above 7 years.
The fund house may not charge investment and advisory fees on it.
Units of funds with over 65% in debt, bought from 1 Apr 2023, are taxed at slab whatever the holding period.
For learning only, not investment advice. Built in India by a team that tracks its own money on Reva.