Never miss a great news story!
Get instant notifications from Economic Times
AllowNot now


You can switch off notifications anytime using browser settings.
ET Wealth
11,662.6074.25
Stock Analysis, IPO, Mutual Funds, Bonds & More

Credit risk funds can bring over 9 per cent returns, but with a dash of risk

Credit risk funds, which invest at least 65% of their corpus into AA+ funds and lower, have seen outflows of ₹8,000 crore in the last three months.

, ET Bureau|
Updated: Jul 11, 2019, 02.29 PM IST
0Comments
Getty Images
corpus main
Investors with appetite for risk could put money into credit risk funds which could return about 9% in the next one year. This debt scheme category, which invests predominantly in lower rated papers, has seen sharp outflows in recent times because of a slew of defaults and ratings downgrades in the wake of the IL&FS fiasco.

“Valuation is attractive due to higher spread of the schemes, yield to maturity (YTM) over the repo rate,” says Sankaran Naren, executive director, ICICI Prudential Mutual Fund.

Credit risk funds, which invest at least 65% of their corpus into AA+ funds and lower, have seen outflows of ₹8,000 crore in the last three months. As investors poured money into quality paper and fund houses to buy more AAA rated paper and government bonds, the spread between AAA rated paper and other securities has increased sharply. In the current scenario, fund managers point out that while a AAA rated paper gives a yield of 7.25%, an AA paper could give yields of 9% and an A rated paper could give 10%. These spreads are the highest in the last decade. For instance, the current spread of the portfolio of ICICI Prudential Credit Risk – one of the biggest in the category – over the repo is as high as 4.91%, the highest since December 2010. The average spread is 2.9%.

“The credit market is tight and good companies at higher yields. Fund houses with good process for credit evaluations should be preferred,” said Rupesh Bhansali, head (distribution), GEPL Capital.

He recommends ICICI Prudential Credit Risk Fund and Franklin India Credit Risk Fund, which have given returns of 8.85% and 8.37% over the last one year.

In the last one year, investors have lost money in credit risk funds. For instance, Boi Axa Credit Risk Fund lost as much as 48% of its value, while many others lost 2-5%.

Returns Scorecard
Scheme 1-year return (%) AUM (Rs Cr)
IDFC Credit Risk 9.38 1,319
ICICI Prudential Credit Risk 8.84 10,942
Kotak Credit Risk 8.73 4,916
HDFC Credit Risk 8.72 15,066
Franklin India Credit Risk 8.46 6,928
Source: Value Research | Returns are for direct plans
0Comments

Also Read

BOI Axa Credit Risk Fund loses 15% in a day

How should you choose a credit risk fund?

How should you choose a credit risk fund?

ICICI Prudential Credit Risk Fund: Fund review

ICICI Prudential Credit Risk Fund: Fund review

Comments
Add Your Comments
Commenting feature is disabled in your country/region.
Download The Economic Times Business News App for Live Elections News & Results, Latest News in Business, Share Market & More.

Other useful Links


Follow us on


Download et app


Copyright © 2019 Bennett, Coleman & Co. Ltd. All rights reserved. For reprint rights: Times Syndication Service