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Best Credit Risk Mutual Funds
- Average returns - Dynamic
- Number of funds - (Static)
What is a Credit Risk Funds ?
A credit risk fund is a debt mutual fund investing a major part of its portfolio in debt instruments below the highest-rated instruments. Since such instruments carry credit risk, they offer a higher interest rate.
Advantages of Credit Risk Funds
Good returns
To compensate for the higher credit risk, the underlying securities offer higher returns which add to the portfolio allowing you to earn good investment returns.
Liquidity
Credit risk funds usually invest in short-term debt instruments to limit the exposure to credit risk. Hence, they offer good liquidity
Capital appreciation
If the rating of the underlying securities increases, their value also rises. This helps in generating capital appreciation for investors.
Explore Credit Risk Funds
AUM: 23427(Cr)
Risk: Very High
- MIN. INVESTMENT 500
- 5 YRS RETURNS 33.32%
- Invest (Per Month) ₹10000
- Get (30 Yrs) ₹24,850*
*Projections/estimations is backtested using historical data.
- AUM: 23427(Cr)
- Risk: High
- MIN. INVESTMENT 1000
- 5 YRS RETURNS 33.32%
- Invest (Per Month) ₹15000
- Get (30 Yrs) ₹34,850*
*Projections/estimations is backtested using historical data.
Credit Risk Funds Returns Calculator
REGULAR INVESTMENT
SIP
Invest systematically in regular amounts and build a corpus with a disciplined investing habit.
START SIPONE TIME INVESTMENT
Lump sum
Invest once with the facility of lump sum investing and save at your will. Time the market correctly and earn good returns.
INVEST LUMPSUMTotal Amount Invested
₹ 0
after 30 years you will get a return of
₹ 0
Disclaimer: Projections/estimations is backtested using historical data.
Total Amount Invested
₹ 0
after 30 years you will get a return of
₹ 0
Disclaimer: Projections/estimations is backtested using historical data.
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Understanding Credit Risk Funds
Table of Contents
What are credit risk funds?
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A type of open-ended debt mutual fund, a credit risk fund is one that invests a minimum of 65% of its portfolio in debt securities which carry AA or below credit rating. Since these securities are not highly rated, the fund has an element of risk for investors.
What are the features of credit risk funds?
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High credit risk due to the nature of the portfolio
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The potential of return generation is high since low-rated securities have higher interest rates
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There’s no capping on the maximum investment amount
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You can get better returns compared to fixed deposits
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The funds aim to grow the portfolio through interest earned and also through the rise in the price of the underlying securities
Things to keep in mind when investing in credit risk funds
Check the expense ratio of such schemes. A high ratio eats into the fund’s returns and should be avoided
Compare credit risk funds on their returns. A fund with the highest return is better
Check the portfolio for the credit rating of the underlying securities. A fund with securities carrying a good rating is better
You might incur short-term losses if the bond values fall in the short-term
What are the types of risks that credit risk funds face?
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Credit risk
Risk of default on the debt instrument
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Interest rate risk
Risk of rising interest rates, which reduces the value of debt instruments
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Inflation risk
Risk of inflation reducing the returns from the debt fund
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Liquidity risk
Risk of not being able to trade in debt instruments
What is the tax implication of credit risk funds?
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Returns earned are taxed at your income tax slab rates
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Dividends earned, if any, are taxed at your income tax slab rate
What are the payout options?
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Dividend option
Earn dividends on your investment at regular intervals
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Growth option
Accumulate the returns over the investment tenure and get a lump sum amount on redemption
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FAQs On Credit Risk Funds
Credit risk funds are debt mutual funds that invest at least 65% of the investment in low-rated companies. What happens is that these companies pay higher interests as a means to compensate for lower credit ratings.
At a higher risk, credit risk funds can potentially offer better returns than bank FDs and quite a few other instruments in the short run.
Like any other category of debt mutual funds, credit risk funds are taxed as capital gains. Investments with a holding period of less than 36 months are taxed as STCGs (short-term capital gains) as per prevailing tax rates upon redemption. Meanwhile, redemption payouts from investments held for 36+ months, classified as LTCGs (long-term capital gains), are taxed at a rate of 20%.
Yes, credit risk funds carry a significantly high amount of risk compared to a lot of other debt funds.
Depending upon the specific fund, you can invest in credit risk funds via SIP or lumpsum
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