What should an investor verify first?

The fund's actual issuer concentration — a portfolio with a few dominant top exposures is not meaningfully diversified.

How does the structure affect the investor's outcome?

Private loans can be customised with bespoke covenants and security a standardised NCD typically cannot offer.

What is the main downside to test?

A listed label does not eliminate credit loss risk — rated, exchange-listed NCDs have defaulted before.

How should the final decision be made?

Use a fund when manager execution and diversification genuinely add measurable value over direct credit investing.

Back to JournalPrivate-Credit Evaluation

Private Credit AIF vs Corporate Bonds and NCDs

Janvi Bhalla2 min read

Understanding the Credit Return Engine

A direct NCD (Non-Convertible Debenture) gives an investor exposure to one specific issuer and one specific instrument, priced and structured at issuance. A private-credit AIF instead pools capital into a portfolio of loans selected, structured and actively monitored by a manager across the fund's life.

The fund can diversify across borrowers and negotiate stronger bespoke covenants and security than a retail-facing NCD typically offers, but this comes at the cost of an additional fee layer, genuine illiquidity, and dependence on the manager's own skill and judgment.

Reading Protection, Cash Flow and Structure

Listed bonds and NCDs can offer observable market prices and exchange trading, giving a visible mark-to-market reference — though actual secondary-market liquidity for many Indian corporate bonds remains genuinely thin, and a quoted price does not guarantee an investor can transact at that level in size.

Private loans within an AIF can be customised with covenants and security tailored to the specific transaction, and the fund manager actively controls workout decisions on behalf of all investors if a borrower runs into difficulty — an NCD holder has far less individual negotiating power over a listed issuer in distress.

	Direct NCD	Private-Credit AIF
Exposure	Single issuer, single instrument	Portfolio of loans across multiple borrowers
Liquidity	Exchange-listed, but often thin	Generally illiquid until fund maturity
Negotiating power	Standardised terms set at issuance	Manager can negotiate bespoke covenants and security
Cost	No ongoing management fee	Management fee plus carried interest
Workout control	Limited individual investor influence	Manager actively controls the process

A structural comparison — actual terms vary by specific issuer, fund and instrument.

Where Credit Risk Becomes Capital Loss

Diversification within a private-credit fund can be overstated when a small number of top exposures dominate the portfolio — a fund holding 20 names is not meaningfully diversified if three borrowers represent half the capital deployed.

A listed label on a bond does not eliminate credit loss risk — several rated, exchange-listed Indian NCDs have defaulted in recent years, and the fund's fee layer must genuinely be earned through superior sourcing, structuring and monitoring, not simply assumed to add value.

Making the Allocation Decision

Before acting, answer five questions in writing: compare issuer concentration in the fund against what a self-selected basket of direct NCDs would offer; review the actual security and covenant packages the fund has negotiated; honestly measure the secondary liquidity available in either option; compare net yield after all fees and taxes on a like-for-like basis; and decide candidly whether you have the time and expertise to monitor a direct issuer yourself.

Use a fund structure when the manager's sourcing, structuring and monitoring genuinely add measurable value over what a capable individual investor could achieve directly — not by default.

Key takeaways

A direct NCD gives exposure to one issuer; a private-credit AIF pools multiple loans under manager selection.
Listed bonds offer observable prices, but real secondary liquidity is often thin.
Diversification can be overstated when a few top exposures dominate the fund's portfolio.
A listed label does not eliminate credit loss — rated NCDs have defaulted in India.
Use a fund when manager execution and diversification add measurable value over direct credit.

More in Private-Credit Evaluation

Continue with the other chapters in this module.

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