If you are a debt fund investor, you might have received notifications from your fund company about something called 'Potential Risk Class Matrix', or PRC. In this story, we tell you what it is and what it says about your fund. Simply put, this matrix provides a bird's eye view of the maximum credit risk and interest rate risk a fund can undertake. So, you can think of it as the 'Lakshman Rekha' for a fund. Every AMC is mandated to place each of its debt funds in one of the cells of this 3x3 risk matrix (see the image below). For instance, if a fund chooses to place itself in cell A-III, it means that the fund will always play safe on credit quality, i.e., never invest in bonds lower than AAA rating. But it will have the flexibility to invest in bonds maturing in more than seven years. Usually the prices of such bonds swing sharply in response to change in interest rates. Therefore, you can expect an A-III fund to always be low on credit risk but poten
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