India's private credit market has experienced remarkable growth in recent years, establishing itself as a significant asset class in the asset allocation matrix. It supports portfolio diversification and helps balance the risk - return proposition by distributing risks across various asset classes - equities, fixed income, real estate and commodities.
Speaking at the VCCircle LP Summit 2025 in Mumbai, Rakshat Kapoor, Head - Private Credit & Chief Investment Officer, Modulus Alternatives, shared his insights on key factors when considering capital allocation to this asset class. He also spoke on the growing appeal of private credit as an attractive component in the fixed income portfolio.
As the capital supply continues to grow in the private credit landscape, investors must carefully evaluate several key parameters before allocating capital.
Rakshat Kapoor said, “While investing in private credit, it is essential for investors to look at well-articulated investment strategies and more importantly, its execution. Investors should look for consistency in investing strategy and be careful of any drifts.”
Kapoor also underscored the importance of governance framework of the fund house, along with its track record and performance, while evaluating a fund. A strong governance framework is essential in the private credit market to ensure transparency and risk management. Since private credit operates outside traditional banking regulations, an effective governance structure plays a crucial role to ensure investor interest protection, regulatory compliance, and operational efficiency.
“An independent Board and presence of external members in the Investment Committee enhances the decision-making process by bringing in diverse perspectives”, Kapoor adds.
Kapoor strongly emphasized that compliance and disclosures, regular investor communication along with managing both internal and external conflicts, form the foundation of a robust governance framework. He further added that how a fund house has invested and managed assets in different market conditions and the returns generated over a period of time provides an insight into the investment strategy. Touching upon the attractiveness of private credit within fixed income asset class, Kapoor said, “Performing private credit remains attractive for investors seeking portfolio diversification within the fixed income basket.”
He added that fixed income may be considered in two broad buckets; - products highly correlated with interest rates in the economy like AAA / AA credits - higher grade credits (liquid funds). And secondly, those products that are not entirely correlated to interest rates such as private credit. “Investors who are looking at playing out the credit cycle in India can consider investing in private credit funds”, Kapoor explained. He further added that linearity and a better predictability of returns, regular income distributions, and the ability of this asset class to deliver anywhere between 12-13% to 18-20%+ pre tax returns is adding to the attractiveness of this asset class.
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