Rs 1 crore in 2017 would have grown meaningfully today: Northern Arc CEO on consistent credit AIF returns

Time of India

28-07-2025

In a financial landscape often dominated by volatile
equities
and underwhelming traditional debt products, credit-oriented Alternative Investment Funds (
AIFs
) have quietly carved a niche of stability and performance.
In this edition of ETMarkets AIF Talk, Bhavdeep Bhatt, CEO of
Northern Arc Investments
, shares why credit AIFs — when backed by strong underwriting, sectoral expertise, and data-driven risk frameworks — have delivered consistent double-digit returns over the years.
Bhatt points out that an investment of ₹1 crore in Northern Arc's flagship fund back in 2017 would have grown significantly today, with no instances of default or capital erosion.
As India's
bond market
deepens and
fixed income
finds renewed favour in a softening rate environment, Bhatt makes a strong case for investors to explore this lesser-known but resilient asset class. Edited Excerpts –
Q) Take us through the performance of the funds for the month of June. On a yearly basis, the fund has clocked over 12% return, PMS Bazaar data showed. It has been a steady performer since inception. Tell us how much wealth one would have maintained if he/she invested Rs 1 cr. at the launch of the fund back in 2017?
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A) At Northern Arc Investments, we have been in the business of credit AIFs and PMS for over a decade. Our track record reflects consistent and disciplined fund performance. Over the years, we've successfully exited six AIFs, delivering a gross XIRR of 14.57% on the matured funds.
What's notable is that across these funds, there has not been a single rupee loss or even a single day's delay in payout or fund maturity.
Moreover, every matured fund has seen the weighted average exit rating of the portfolio improve by at least one notch compared to the entry-level rating, an indication of both portfolio quality and prudent risk management.
This disciplined approach has translated into strong and steady returns. As seen in recent PMS Bazaar data, our fund has clocked over 12% annual return, continuing its consistent performance since inception.
An investor who had committed ₹1 crore at the launch of the fund back in 2017 would have witnessed meaningful wealth creation over this journey.
Q) What is the investment objective?
A) Our focused objective has always been
Financial Inclusion
and Risk-Adjusted Returns. Our investment approach aligns both with market opportunity and developmental impact. Each of our funds is crafted with a focused yet diversified mandate.
For example, Fund 4 is designed to invest in a broad pool of securities from sectors such as microfinance, affordable housing finance, small business loans, commercial vehicle finance, and agri-business finance.
The broader objective is not just return generation but also to promote financial inclusion in India.
On the other hand, Fund 8 is tailored to invest in institutions that provide credit to microfinance institutions, small business finance companies, vehicle finance companies, corporates, and agri-business lenders—with the clear goal of earning higher risk-adjusted returns.
Q) How do you manage risk in the fund?
A) Risk management lies at the heart of everything we do. Our framework is built around what we call the High Touch, High Tech, and High Test model.
High Touch:
Within the Northern Arc ecosystem, a 35-member risk team evaluates financial, business, and governance risks. This includes regular site visits at the time of onboarding and throughout the investment tenure. Our underwriting guidelines are sector-specific, and we place significant emphasis on a company's ability to service debt from operating cash flows. We consciously avoid bullet repayment structures and holding company frameworks.
High Tech:
At the core of our tech-led risk framework is a comprehensive data lake capturing high-frequency data from our portfolio companies. Our proprietary analytics tools built on this this data infrastructure helps us identify patterns, interpret and forecast sectoral and geographic trends in credit origination and credit performance effectively.
High Test:
Each fund is guided by a robust Investment Committee consisting of seasoned credit professionals. Every fund has a unique IC, and each member holds veto power. This means that each investment is evaluated not just by the fund manager and risk team, but also through multiple experienced lenses, ensuring scrutiny, and direction on collateral and covenants.
Q) What is the kind of impact you see on bonds amid falling interest rate scenario especially for corporate bond issuance?
A) The current interest rate cycle has implications for the corporate bond market. Falling interest rates typically benefit the bond market, leading to appreciation in existing bond prices and making new issuances more attractive for companies.
With India's debt-to-GDP ratio at a two-decade low, we anticipate greater bond issuance activity as corporates look to refinance high-cost debt or fund new expansion plans.
We've already seen a surge in corporate bond issuances, driven by the RBI's easing interest rates and the need for cheaper financing options.
That said, liquidity particularly in the secondary market for retail investors remains a space still under development.
Q) What is your take on the corporate bond market in India and how has it evolved over the past few years?
A) Globally, credit markets are often larger than equity markets. While India is not there yet, its bond market is witnessing a decisive shift. Two major trends stand out:
Record Growth in Issuances: FY25 has seen companies raise a record ₹9.9 lakh crore in corporate bonds, a 28% increase over the previous year.
This not only signals stronger market confidence but also increased corporate capex activity.
The total bond market in India now stands at ₹226 lakh crore, with corporate bonds contributing over ₹53.6 lakh crore.
Shift from Bank Lending to Bonds: More Indian companies are now turning to bond markets instead of traditional bank credit.
Bonds offer greater flexibility in instrument structuring, better pricing especially in a falling interest rate environment and the ability to raise capital without equity dilution.