A year when the stock market performance has been weak, some schemes of the fixed-incomplete category have given more returns than many equity schemes. Sensex and Nifty returns have been around 6 percent on a year -on -year basis. During this time some credit risk funds have given more than 20 percent returns. Credit Risk Funds Date is a segment of date mutual funds. Credit risk funds invest in low -rated corporate bonds to get more returns from date funds. The SEBI rule states that the credit risk funds will have to invest at least 65 per cent in AA and low -rating corporate bonds.
These are the reasons for great performance
Recently Credit Risk Funds (Credit Risk Fund) They have been in discussion. The reason for this is that some funds in this segment have given more than 20 percent returns in a year. Many things have a hand in it. Credit Environment has been improved. The risk of default has increased. Bonds have increased due to rating upgradation, which has benefited the fund managers. Fund managers invested in some low -rating bonds, whose ratings were later upgraded. Three things are the most important in fixed income. These include duration, liquidity and credit.
Benefits of investing in low rating bonds
Aditya Birla Sunlife AMC’s co-head (fixed income) Sunayna Dr. Kunha said, “There has been pressure on the spread of the highest rating AAA/AA+ Bonds for the last few months. However, this is also going to happen in AA/AA-rating bonds. We hope that we can find pressure on the binds of low-rating bonds. Investing funds will benefit. “
Supply of corporate bonds has increased
Here, the impact of the reduction in interest rates is visible on the corporate bond markets more than the banking segment. Many companies are trying to raise money through bonds. This has increased the availability of good quality corporate bonds in the market. In addition, due to increasing activities related to merger and acquisition (M&A), bonds with attractive risk adjustable returns are coming in the market. This has increased the interest of fund manager in corporate bonds.
Fund managers benefited like this
According to Vivek Ramakrishnan, Vice President (Investments) of DSP Mutual Fund, Credit Risk Funds have benefited in two ways. On the one hand, he has benefited as a capital gains due to a rally in the Indian Bonds Market and on the other hand he has got the benefit of increasing yield of low -rating bonds. He said, “Credit Environment has not been very strong due to sluggishness in the economy and problem in unseen loans and microfinance, but no major problems have been revealed. This has also strengthened the setment.”
Also read: What is UPI Credit Line, how can it be taken advantage of?
Should you invest?
It is going to keep in mind that the recent return of credit risk funds has been slightly higher than the historic average, but it has only one or two funds. The return of the entire category has not been much. Arjun Guha Thakurta, executive director in Anand Rathi Wealth, said that such a spectacular performance will continue in a long period. The average yield-to-maturity (YTM) of these funds is around 6.1 per cent, which is less than the 6.22 per cent yield of 10-year government bonds.