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The credit risk fund is one of the categories of Mutual Funds introduced by the Securities and Exchange Board of India (SEBI) on Oct 2017. In simple terms, credit risk funds are a type if Debt fund that invest in corporate Bonds and commercial papers. These funds basically invest in low-rated bonds that may see an upgrade in rating in the future. As per definition by SEBI, the credit risk scheme will invest in AA and below the high-rated corporate bonds.
The credit risk mutual funds should invest at least 65 percent of its assets below the highest-rated instruments Generally AAA AA debt rated instrument.
By Investing in low credit rated debt instruments which are below
AA rated, credit risk funds aim for higher returns. It is believed that low credit rated debt instruments tend to provide higher returns as these funds are high-risk investments.
Usually, a debt instrument with an
AA rating is considered to be riskier than one with
AAA ratings. Credit risk fund managers may take a Call in investing in the
AA instrument over
AAA ones. This possibly could be because of the potential upgrade on the ratings later in the future or assured returns due to strong fundamentals.
The corporate sector shows positivity when the Economy of the country improves. Due to which there is an improvement in its finances and this leads to an upgrade in bond ratings issued by the company. An instrument with high rating generally offers a lower interest rate compared to the bond/instruments that come with a low rating. Therefore, when rating upgrades, it leads to a fall in yield and a rise in bond price. During the period of Economic Recovery, there are chances of rating upgrades and one can play this theme with credit risk funds.
Also, since these funds are known for its 2-3% extra returns than those of other risk-free debt funds, investors tend to invest in this fund by taking a little risk.
Even though this fund belongs to the debt category, credit risk fund comes with a fair amount of risk. Investors should be aware that rise and fall are a frequent trait in such funds. Therefore, investors who can bear risk in their investments should only prefer investing in this fund. One with the low-risk ability should stay away from this fund.
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Fund NAV Net Assets (Cr) 3 MO (%) 6 MO (%) 1 YR (%) 3 YR (%) 2022 (%) Debt Yield (YTM) Mod. Duration Eff. Maturity BOI AXA Credit Risk Fund Growth ₹10.655
₹161 1.1 2.5 130.4 12 143.1 7% 9M 10M 24D DSP BlackRock Credit Risk Fund Growth ₹34.0564
₹210 1.1 2.8 9.9 5.3 9.3 7.95% 1Y 7M 20D 1Y 11M 1D Aditya Birla Sun Life Credit Risk Fund Growth ₹17.411
₹1,032 1.5 3.2 7.4 7.5 7.1 8.39% 1Y 7M 2D 2Y 6M 14D Invesco India Credit Risk Fund Growth ₹1,592.54
₹129 5.1 6.6 6.9 5.5 2.2 7.71% 1Y 8M 8D 2Y 4D Sundaram Short Term Credit Risk Fund Growth ₹26.352
₹116 1 1.9 5.3 1.9 3.6% 11M 8D 1Y 2M 16D ICICI Prudential Regular Savings Fund Growth ₹26.4211
₹7,584 1.4 3.2 5.1 6.7 5.1 9.02% 1Y 3M 11D 2Y 4M 24D Note: Returns up to 1 year are on absolute basis & more than 1 year are on CAGR basis. as on 28 Mar 23
Since these funds are risky, you need to have a high-risk appetite. You should be able to tolerate the risk in this fund.
Always go for an experienced and reputed fund manager. Check the past performance of the schemes managed by that fund manager.
Check the AUM of the fund before investing. Ideally, when you invest in this type of fund, the size of the fund should be big. This is because their greater corpus helps in spreading out the risk and the scope of diversification is better.
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