The most common debt fund is not the safest one #
The single most common cell is B-I, and 90 of the 336 funds sit there. It is not the mildest corner. B-I means the shortest duration paired with moderate credit risk, not the lowest. These are the liquid and money market and ultra short funds that people park cash in. They hold commercial paper and certificates of deposit rather than only government paper, so their credit grade reads B, one notch off pristine, even though the duration stays under a year.
That inverts the instinct most people bring to cash parking funds. The assumption is that a short term debt fund takes almost no risk of any kind. In practice the biggest single group of debt funds accepts a measured amount of credit risk in exchange for yield, and overnight funds are the core of the truly lowest cell A-I.
The second largest group tells the opposite story. A-III funds, 134 of the universe lands in the A column overall, are gilt funds and long duration funds. They lend almost entirely to the government so default risk is close to zero, then take a large duration bet that swings their value every time rates move. A gilt fund can lose money in a year without a single default. So two different risks dominate two different groups. Credit at the short safe looking end, duration at the government end.
How the whole debt universe spreads #
Laid across the nine cells, the 336 funds cluster hard where credit is safe to moderate and thin out where it is high. The credit grade is the letter, the interest rate risk is the numeral. The darker the cell, the more funds sit in it.
| I≤ 1 yr | II≤ 3 yr | IIIno cap | All | |
|---|---|---|---|---|
| Alow credit | 56 | 8 | 70 | 134 |
| Bmoderate credit | 90 | 14 | 64 | 168 |
| Chigh credit | 10 | 10 | 14 | 34 |
| All | 156 | 32 | 148 | 336 |
Fewer funds more
Credit clusters in the middle. The B band holds about 50 percent of all debt funds, the A band about 40 percent and the high credit C band only about 10 percent. Reserving the right to take high credit risk is rare.
On 23 April 2020 Franklin Templeton wound up six debt schemes overnight, including its Low Duration, Ultra Short Bond and Credit Risk funds, and locked in about 25,000 crore of investor money. The funds had reached for yield in lower rated paper that stopped trading when COVID hit the bond market. The PRC framework arrived the next year and the industry answer to it is visible in the data. High credit headroom is now rare and the funds that still reserve it mostly carry the honest label Credit Risk Fund on the door.
Duration splits to the extremes. Funds pile up at very short and very long and mostly skip the middle. The moderate duration column, Class II, holds only 32 of the 336 funds.
What each category actually discloses #
The risk class tracks category once the code is decoded, though not as tightly as you might expect. The most common cell in each category is shown below with how many funds share it. Where a category spreads across cells it is because the class is a ceiling each fund sets for itself, so two funds in the same category can declare different maximums. This is the lookup no screener offers, taken from the current scheme documents.
| SEBI category | Most common cell | What that cell means | Funds |
|---|---|---|---|
| Overnight Fund | A-I all 31 | lowest credit risk, very short duration | 31 |
| Liquid Fund | B-I 22 of 30 | moderate credit risk, very short duration | 30 |
| Money Market Fund | B-I 18 of 19 | moderate credit risk, very short duration | 19 |
| Ultra Short Duration Fund | B-I 10 of 17 | moderate credit risk, very short duration | 17 |
| Low Duration Fund | B-III 7 of 16 | moderate credit risk, long duration | 16 |
| Floater Fund | B-III 4 of 7 | moderate credit risk, long duration | 7 |
| Short Duration Fund | B-III 9 of 18 | moderate credit risk, long duration | 18 |
| Banking and PSU Fund | B-III 7 of 14 | moderate credit risk, long duration | 14 |
| Corporate Bond Fund | B-III 9 of 13 | moderate credit risk, long duration | 13 |
| Medium Duration Fund | C-III 4 of 8 | high credit risk, long duration | 8 |
| Medium to Long Duration Fund | B-III 7 of 11 | moderate credit risk, long duration | 11 |
| Dynamic Bond | B-III 11 of 17 | moderate credit risk, long duration | 17 |
| Credit Risk Fund | C-III 7 of 10 | high credit risk, long duration | 10 |
| Gilt Fund | A-III all 17 | lowest credit risk, long duration | 17 |
| Gilt Fund with 10 year constant duration | A-III all 2 | lowest credit risk, long duration | 2 |
| Long Duration Fund | A-III all 8 | lowest credit risk, long duration | 8 |
A further 98 funds sit in the broad Income group, a mix that includes fixed maturity plans and older income schemes, so they are not shown as a single clean category here.
How to read the two letters #
Two axes, read independently. For the letter, SEBI scores every holding on a credit scale that puts government securities and cash at the top and the lowest grades at the bottom, then takes the value weighted average across the portfolio. The numeral is the scheme's maximum Macaulay duration.
| The letter | Credit risk |
|---|---|
| A | Lowest. A book of government paper and top rated bonds. |
| B | Moderate. Mixes in some lower rated corporate paper. |
| C | Highest. Reserves room for genuinely risky credit. |
| The numeral | Interest rate risk |
|---|---|
| I | Short. Maximum Macaulay duration capped at 1 year. |
| II | Medium. Capped at 3 years. |
| III | Long. No cap. |
These are ceilings not bands, so a Class II fund can run well under 3 years and still be Class II. So A-I is the mildest corner on both counts and C-III is the sharpest. A-III and C-I are the interesting opposites, one taking pure duration risk and the other pure credit risk.
The cell is a ceiling, not a promise #
The risk class is the maximum a scheme may take, not where it sits today. SEBI's own wording is that the thresholds determine the maximum interest rate risk and the maximum credit risk the scheme is permitted to take, while keeping the flexibility to move downwards on the risk scale. A fund declared C-III can run a clean high grade book for years. The class only tells you the worst it is allowed to do.
What stops a fund quietly drifting riskier is the exit rule. Moving into a cell with higher credit or duration risk than the declared maximum counts as a change in fundamental attribute under Regulation 18(15A) of the SEBI Mutual Fund Regulations. That triggers written notice to every unit holder and a load free exit window at NAV. The one time placement of existing schemes into the grid back in 2021 was exempted from that. Every move upward since is not.
Where the number lives #
Each scheme's current risk class sits on the front of its Scheme Information Document and Key Information Memorandum and on the fund house disclosure page. The figures here come from AMFI scheme summary documents, each dated to when the fund house last published it. The risk class is monitored on an ongoing basis so a fund's cell can change, which is exactly the event the exit rule covers.
FinSet shows the class, dated and decoded, for the debt schemes it covers. It still won't tell you which one to buy.
Every fact, dated and sourced. We still won't tell you to buy it.
This page is investor education, not investment advice. The Potential Risk Class is the SEBI disclosed maximum a scheme may take, not its current positioning. FinSet is an AMFI registered mutual fund distributor, ARN 180462. Mutual fund investments are subject to market risks, read all scheme related documents carefully.
Sources. Data from AMFI Scheme Summary Documents, each dated to its own last published date and refreshed monthly. Distribution and category counts computed live from 336 debt scheme documents. Framework per the SEBI circular on the Potential Risk Class matrix, SEBI/HO/IMD/IMD-II DOF3/P/CIR/2021/573, 7 June 2021, effective 1 December 2021, consolidated into the SEBI Master Circular for Mutual Funds dated 20 March 2026. Franklin Templeton winding up figures per the SEBI and press record of 23 April 2020.
FinSet keeps mutual fund disclosures dated, decoded and in one place. The weekly email carries what changed, with no buy or sell call.
Get the weekly emailCommon questions #
What is the Potential Risk Class of a debt fund?
A two part code, a letter from A to C for credit risk and a numeral from I to III for interest rate risk, that SEBI has required every debt scheme to disclose since December 2021. It marks the maximum risk the scheme is permitted to take.
Does A-I mean a fund is safe?
A-I is the lowest cell on both axes, lowest credit risk and shortest duration. It means the fund is allowed to take very little of either risk. It is not a return guarantee and it is a ceiling, so it describes permission rather than the current portfolio.
Why are gilt funds marked A-III when government bonds are the safest debt?
Because the two axes are separate. Government paper carries almost no credit risk, which earns the A. Long dated government bonds swing sharply when rates move, which is high interest rate risk and earns the III. Safe on credit and sharp on duration is exactly what A-III says.
Can a fund's risk class change?
Yes. A move to a higher risk cell is treated as a fundamental attribute change under Regulation 18(15A) and gives investors a load free exit window. A move to a lower risk cell does not.
Where can I find a fund's risk class?
On the front page of the scheme's Scheme Information Document and Key Information Memorandum and on the fund house disclosure page. FinSet also lists it, dated and decoded, from the scheme documents.