Credit Risk Funds

Credit risk mutual funds focus on investing in bonds and other fixed-income securities issued by companies with lower credit ratings or creditworthiness. These securities typically offer higher yields to compensate investors for the increased risk of default.

Fund managers of credit risk mutual funds construct portfolios by selecting a mix of corporate bonds, debentures, and other debt instruments from issuers with lower credit ratings. The fund may invest across various sectors and industries to diversify the portfolio and spread risk.

Fund managers conduct thorough credit analysis to assess the creditworthiness of issuers and securities. This analysis involves evaluating factors such as the issuer's financial health, cash flow, debt levels, industry dynamics, and overall economic conditions. Based on this analysis, fund managers determine the appropriate level of credit risk for the portfolio.

While credit risk mutual funds seek higher yields by investing in lower-rated securities, they also aim to manage risk through diversification and active management. Diversification involves spreading investments across a range of issuers and industries to reduce the impact of defaults on the portfolio. Fund managers may also actively monitor credit conditions and adjust the portfolio as needed to mitigate risks.

Credit risk mutual funds typically offer higher yields compared to traditional fixed-income funds that invest in higher-rated securities. However, the higher yield potential comes with an increased risk of default. Investors in credit risk mutual funds should be aware that fluctuations in credit quality and interest rates can affect the fund's performance and returns.

Like other fixed-income investments, the prices of bonds held by credit risk mutual funds are sensitive to changes in interest rates. When interest rates rise, bond prices generally fall, and vice versa. Fund managers may adjust the duration of the portfolio to manage interest rate risk based on their outlook for interest rates.

The primary risk is that the issuer of the bond may default on their debt. This means you could lose some or all of your principal investment.

The price of bonds generally goes down when interest rates go up. This can lead to losses if you need to redeem your investment before it matures.

Credit risk funds may be less liquid than some other debt funds. This means it may take longer to sell your holdings and get your money back.

Download the INDmoney app and create your free investment account by completing your KYC ( Know Your Customer).

Once your Free investment account is ready, you can either search for a Credit Risk Mutual Fund or go to the mutual fund section and tap on Credit Risk mutual funds.

Choose a Credit Risk Mutual Fund by looking at aspects like past returns, volatility, downside capture ratio, AUM, Expense ratios and underlying stocks and sectors.

You can choose to set up SIP in Credit Risk mutual funds or even invest as lumpSum. Once you are on the individual Credit Risk mutual fund page click from the bottom “One-time” for lump sum investment or “SIP” for systematic investment plan. 

Choose the amount that you want to invest as SIP or LumpSum.

Set up payments. If you choose to set up SIP in Credit Risk mutual funds,  you can do a free automatic pay set up via bank mandate or UPI. If you choose to invest in lumpsum (one-time) then you can pay via UPI, netbanking, NEFT or RTGS.