India’s richest families bet on private credit for 12–18% returns. But at what risk?

But a double-digit return comes with a very different set of risks. Unlike a listed bond or mutual fund, private-credit investments can involve lending to businesses or projects that may not have easy access to bank funding. The investor is effectively taking a bet on whether the borrower will repay the money, and how quickly that money can be recovered if things go wrong.

That makes the headline return only one part of the story. The more important questions are: Who is borrowing the money? What is backing the loan? How long is the money locked in? And what happens if the borrower defaults?

Why private credit is gaining ground

The rise of private credit is part of a larger change in how India’s family offices are investing.

The EY-Julius Baer report says Indian family offices are moving beyond traditional holdings such as equities, fixed deposits, real estate and gold and increasing their exposure to alternatives including private equity, venture capital, private credit and long-short funds. The report also estimates that mid- and large-sized Indian family offices managed about Rs 70,000 crore in assets in 2024, with the pool projected to grow at a 14% CAGR over three years.

For these investors, private credit offers something that equity or private equity does not always provide – income.

A private-credit investor is a lender rather than an owner. Returns generally come from interest payments, fees and structured financing arrangements. This can make the return profile different from equity investments, where the investor depends much more on business growth and eventual valuation.

Amitabh Lara, Executive Director, Anand Rathi Wealth Limited, says private-credit funds in India are commonly structured as Category II AIFs and invest in private loans, structured credit, non-convertible debentures and other debt instruments issued by unlisted or privately held companies.

Many of these borrowers may not have easy access to conventional bank financing, particularly in sectors such as real estate, healthcare, infrastructure and mid-market businesses.

That financing gap is one reason private-credit funds can charge a higher risk premium. They can offer customised financing and quicker access to capital than traditional lenders.

Sanjiv Bajaj, Joint Chairman & Managing Director, Bajaj Capital, also points to a genuine financing gap in India. There are businesses with good cash flows and growth opportunities that may not fit the lending criteria of traditional institutions.

Private credit can step into that gap with more flexible and structured capital.

But Bajaj cautions against treating the current return range as something investors can expect year after year. As more money enters private credit, competition for relatively safer lending opportunities could increase and returns may come down.

The important question, he says, is not simply how high the return is, but what risk the investor is being paid to take.

What does private credit add to a family office portfolio?

Private credit is not meant to replace equities or private equity. Equities give investors ownership in businesses and the potential for long-term capital growth. Private equity also depends on business growth and eventual exits. Private credit works differently because the investor earns primarily as a lender.

For family offices, this can add a regular income component and potentially reduce dependence on equity-market movements.

The EY-Julius Baer report also highlights private credit as an alternative with low correlation to stock markets. It places private credit alongside direct lending, mezzanine and distressed debt as an asset class that can provide asset-backed exposure and relatively low market correlation.

Bajaj says private credit can also connect family-office capital with the real economy.

A family office can finance a manufacturing company, healthcare business, infrastructure project or real estate development without taking an ownership position in that business.

But diversification should not be confused with safety.

“Different doesn’t automatically mean safer,” Bajaj says, pointing to the credit and liquidity risks that come with private credit.

So, where does the 12–18% return come from?

The return is compensation for taking risks that a traditional lender may be unwilling to take.

Lara says private-credit funds can typically earn yields of around 12%–14%, but the return comes with higher credit risk, borrower concentration, longer lock-in periods, illiquidity and default or recovery risk.

The EY-Julius Baer report’s broader 12%–18% range reflects the returns seen across private-credit structures in India in 2024–25. The report describes these structures as offering predictable cash flows, asset-backed protection and low correlation with stock markets.

But investors should not read that as a guaranteed or fixed return. The final return depends heavily on the underlying loans and how well the fund manager has selected and structured them.

For Lara, the sustainability of returns will depend on underwriting quality, collateral coverage, deal structure and the fund manager’s ability to handle defaults and recoveries.

That is where private credit becomes very different from simply buying an investment offering a high coupon.

The first risk: Can the borrower repay?

This is perhaps the most basic question an investor should ask. A private-credit investment may promise an attractive interest rate, but ultimately the money has to come from somewhere. If the borrower’s business weakens, project gets delayed or cash flows fall, repayment can become difficult.

Bajaj says investors should spend more time understanding the borrower than looking at the headline return.

They need to examine the business, its cash flows, existing debt and the promoter’s track record. Then comes concentration risk. A fund may have several investments and appear diversified, but there can still be heavy exposure to one borrower, sector, promoter group or business model.

This matters because trouble in one area can affect several investments at the same time. The underwriting matters before the coupon.

Real estate is the biggest opportunity — and a big risk

Real estate is a good example of why private credit can offer high returns while also carrying meaningful risks.

The EY report’s data shows just how important the sector is. Real estate accounted for 41.9% of private-credit deals in H2 2025, far ahead of healthcare and conglomerates at 15.1% each.

Sector	Share of private-credit deals, H2 2025
Real estate	41.90%
Healthcare	15.10%
Conglomerates	15.10%
Other sectors	—

(Source: EY–Julius Baer, Indian Family Office Playbook: Now, Next and Beyond, 2025.)

There is a simple reason for this. Real estate developers often need large amounts of money for land acquisition, construction, project completion and refinancing. Banks may be more cautious about some of these loans, creating an opportunity for private lenders.

The loans may also be backed by land, completed properties, receivables or future project cash flows. That collateral provides some protection, but it does not remove the risk.

Lara points out that a developer’s ability to repay can depend on project sales, construction progress, approvals, cash flows and property prices.

A delay in getting approvals or completing construction can push back cash flows. Slower sales can make repayment harder. A downturn in the property market can put further pressure on the borrower.

And even when a loan is secured by property, recovering the money may not be quick.

Bajaj makes a similar point: collateral is not a guarantee.

A property may be worth a certain amount today, but its value can change. If a project gets into trouble, selling the asset and recovering the money may take considerable time.

There can also be concentration risk. Several loans may ultimately be linked to the same developer, geography or real estate cycle. So real estate credit can be both attractive and risky. The real question is whether the return adequately compensates the investor for those risks.

Liquidity: What if you need your money back?

This is another risk that can easily get lost behind a 12–18% return. Private-credit investments are often designed to be held for several years. Lara puts the typical lock-in period at around two to five years.

That means an investor cannot necessarily sell the investment whenever they want. This is very different from a listed security, where there is generally a market to exit. If the investor suddenly needs the money, there may be no easy buyer. Even if an exit is possible, it may come at a discount.

This is why private credit should not be treated like a fixed deposit or a traditional bond.

Lara says family offices should consider the investment’s risk profile, liquidity requirements and existing exposure to alternative assets before deciding how much to allocate.

Bajaj also stresses the same point: many private-credit investments are designed to be held for several years, so investors may not have an easy exit when they suddenly need their capital.

Is a secured loan automatically safe?

It is easy to assume that a loan backed by property or another asset is relatively safe. That would be a mistake.

The value of the security can change, and the process of selling it can take time. Legal issues, market conditions, project delays and the financial condition of the borrower can all affect recovery.

This is why investors need to look beyond the word “secured”.

They should ask:

-What exactly is the collateral?
-What is it worth today?
-How easily can it be sold?
-How much debt is already secured against it?
-Where does this lender stand if there is a default?
-How long could recovery take?

Bajaj says collateral can provide additional comfort, but it should not be treated as a guarantee.

Can 12–18% returns continue?

This is perhaps the biggest question for investors looking at private credit today.

The answer is not simply yes or no.

Private credit benefits from India’s financing needs and the demand for flexible capital. As long as businesses and developers need funding that traditional lenders cannot or will not provide, private lenders can command a premium.

But the market is also attracting more capital.

If more investors chase the same deals, competition can increase and the return available on relatively safer loans can fall.

That is why investors should be careful about extrapolating the recent 12–18% range into the future.

Lara says the ability to sustain returns will depend on the quality of underwriting, collateral and deal structuring, as well as how effectively the fund manager handles defaults and recoveries.

In other words, the manager may matter as much as the market opportunity.

What should investors check before investing?

For a family office considering private credit, the return should be the starting point of the analysis, not the end.

First, understand the borrower. What does the business do? How strong are its cash flows? How much debt does it already have?

Second, understand the security. What backs the loan and how realistic is the value assigned to that collateral?

Third, check concentration. Is too much money going to one borrower, sector, promoter or geography?

Fourth, understand the exit. When can the money come back? What happens if the borrower does not repay on time?

And finally, look at the fund manager’s track record in underwriting and recovering stressed investments.

Private credit may have a useful place in a family office portfolio. The attraction is clear: potentially high income, lower dependence on stock-market movements and access to financing opportunities in the real economy.

But the 12–18% number should not be viewed in isolation.

The better question is the one Bajaj raises: what risk is the investor actually being paid to take?

That is what will decide whether a private-credit investment is genuinely attractive — or simply looks attractive because of its headline return.

Disclaimer: Private credit investments involve credit, liquidity, concentration and default/recovery risks and may not be suitable for all investors. The returns mentioned in this article are based on the data cited from the EY-Julius Baer report and should not be treated as guaranteed or indicative of future returns. Investors should carefully review the structure, underlying borrowers, collateral, lock-in period and risks of any private-credit investment and seek advice from a qualified financial adviser before investing.

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