What are Credit Risk Funds?
All debt funds come with the risk that the issuer of debt securities will default in the repayment of principal or interest. The risk is magnified for investors who invest in low-rated securities. View More
Who Should Invest in Credit Risk Funds?
Credit Risk Funds are short-term investments that can generate the highest returns among debt funds. The typical tenure of these funds is 3 to 5 years. However, these funds carry significant risk and are only suitable for investors with a high-risk appetite. Risk-averse investors looking for regular income best avoid this fund. View More
Features of Credit Risk Fund
Credit risk mutual funds are special debt funds with unique features. Below are some distinct features of the fund.
Credit Risk Premium
Credit risk funds provide credit premiums to investors directly proportional to the credit risk associated with the investment. The credit risk premium (or credit spread) increases with the decrease in credit risk. View More
Taxability of Credit Risk Funds
Credit risk funds are taxed like any other debt fund securities. Dividends paid by the funds were previously exempt in the hands of investors. But the 2020 Budget changed the system of mutual funds paying dividend distribution tax. View More
Risk Involved With Credit Risk Funds
Risk is part and parcel of credit risk funds. The funds can be highly volatile and thus need a solid risk management strategy. Some of the risks associated with credit risk funds are as follows:
Default Risk
Since credit risk funds deliberately invest in low-rated securities, the default risk is naturally higher than other debt securities. View More
Advantage of Credit Risk Mutual Funds
Avenue for Risk Exposure
Investors can expose a portion of their portfolio to high-risk debt securities through credit risk funds and earn better yields. In addition, they can leverage the expertise of skilled fund managers to meet their mid to long-term financial goals. View More