Bank of India Credit Risk Fund generates over 100% returns in a year. Should you invest in it?

Bank of India Credit Risk Fund generates over 100% returns in a year. Should you invest in it?

by 5paisa Research Team Last Updated: Dec 14, 2022 - 04:28 pm 17k Views
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In the last one year Bank of India Credit Risk Fund generated returns of 141.61%. Should you invest in them? Let’s find out. 

When it comes to debt funds investors usually expect a return that can beat the returns of bank fixed deposits (FD). Even generating a double-digit return is somewhat digestible. 

But returns over 100% by a debt fund can spark anyone’s eyes. This would also make people rush toward buying such funds. However, does it make sense to invest in them? We shall find out in this article. So, stay tuned. 

Bank of India Credit Risk Fund generates returns of 141.61% in the last one year. This is quite eye-catching, especially for a debt fund. However, it is important to first check before you leap on to invest in them.  

Why did this fund deliver over 100%? 

As this is a credit risk fund, it would invest in lower-rated papers. The surge in returns of these funds was amid the recovery from Sintex BAPL and Amanta Healthcare. Papers of these companies were written down earlier.  

In the default cycle from September 2018 to March 2020, the Bank of India Credit Risk Fund was affected due to multiple defaults. The higher returns seen in this fund are simply due to the low base that occurred due to write-downs. 

Understand this before you invest 

When you are investing in a debt fund, you first need to understand the purpose of investing in them. If your major concern is capital protection or beating FD returns, then avoid investing in credit risk funds. Rather investing in target maturity debt funds makes more sense in this situation. 

Credit risk funds are only for those who can digest the excess risk that it comes with. Moreover, investing in credit risk funds requires a lot of active management and a good understanding of the credit and interest rate cycle. 

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About the Author

Our research team is composed of some highly qualified research professionals, their expertise range across sectors.

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