Debt's wild child returns

Summary: Behind the eye-popping one-year gains lie old recoveries, thin spreads and sharp drawdowns that most investors have forgotten. If you’re wondering why the debt fund space is buzzing again, look no further than the latest returns delivered by credit risk funds. DSP’s scheme has delivered more than 22 per cent returns in the past one year (as of October 2025), while HSBC Credit Risk Fund isn’t far behind, clocking over 21 per cent. Aditya Birla Sun Life Credit Risk Fund hasn’t been shabby either, posting an impressive 14 per cent in the same period. The performance has led many investors to ask: are credit risk funds genuinely back, or is there something these headline returns are hiding? The question is a loaded one, given the funds’ chequered history. Credit risk funds have shrunk in size so dramatically in recent years that even an Ozempic user would approve. After a string of credit shocks between 2018 and 2020 — including Franklin Templeton’s overnight freeze of six schemes — the category’s assets plunged from about Rs 80,000 crore in late 2018 to just Rs 20,000 crore by September 2025. Given their antecedents, investors are still not touching these funds with a bargepole, despite a few of these funds generating double-digit returns in the last year. On the contrary, AMFI data shows consistent n