4 days ago
Private Credit’s High Returns Come With Hidden Risks
Private credit means lending money through private lenders instead of traditional banks.
It became popular because some businesses cannot easily get bank loans.
Investors may earn more money than from ordinary debt investments, but they also take more risks.
If a borrower pays late or cannot repay, investors may lose money or wait a long time to recover it.
A fund showing an 18% return does not mean the investor will receive 18% after fees and taxes.
For someone in the 30% tax bracket, an 18% interest return could fall to 12.6% before additional taxes.
Private credit investments can also keep money locked up for several years.
Investors should carefully examine the loans, borrowers, collateral and fund manager before investing.
Private credit assets under management in India are estimated at $25–30 billion after expanding at a double-digit pace over five years.
EY India recorded 166 private credit transactions worth $12.4 billion in calendar 2025, up 35% from 2024.
Real estate accounted for nearly 42% of transactions, while healthcare and industrials each represented about 15%.
Advertised returns of up to 22% can be reduced by fees, taxes, defaults, repayment delays and uninvested capital.
Investors are advised to assess borrowers, collateral, loan covenants, fund managers, fees and lock-in periods before investing.
- Who
- Private credit funds, private lenders, borrowers and investors are involved.
- What
- Private credit is expanding in India, offering potentially high returns but carrying substantial risks and costs.
- Where
- India.
- When
- The asset class expanded over the five years discussed; 166 transactions were completed in calendar 2025.
- Why
- Tighter bank and non-bank lending standards created a financing gap for businesses seeking flexible or customised capital.
Key facts
- Estimated assets under management
- Around $25–30 billion
- 2025 transactions
- 166 private credit transactions worth $12.4 billion
- Year-on-year increase
- Transaction value and activity increased 35% from 2024
- Largest sector
- Real estate, at nearly 42% of transactions
- Other major sectors
- Healthcare and industrials each accounted for about 15%
- Potential advertised returns
- Up to 22%
- Typical lock-in period
- Five to seven years, with minimum commitments sometimes around three years
- Illustrative tax impact
- An 18% interest return could fall to 12.6% for an investor in the 30% tax bracket before surcharge and cess
Sources
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