Who should invest in credit risk mutual funds | Who should invest in credit risk mutual funds? Achi-News

credit risk mutual Funds are debt funds that invest in lower-rated corporate bonds. These corporate bonds typically have the potential to offer higher returns because these funds lend to weaker, lower-rated companies at higher interest rates. Hence, there is a high risk on investment. There is a bigger one risk of default execution. If the company issuing the bonds fails to repay interest or principal, this could lead to a payment crisis.

The portfolio of credit risk Funds focus on lower-rated securities. higher heel risk, these funds have less liquidity. This can be a problem when you realize your investments. In such situations, investors can get stuck in a crisis. If the company using the bonds fails, gets downgraded or even closes, FoundationThe net asset value or (NAV) of the property can decrease. This can negatively impact the investor’s returns.

profits from credit risk Money is taxed like debt mutual money. There has been a change in the tax regime for debt funds from April 1, 2023. The benefit of long-term capital gain or index linkage (LTCG) has been removed from debt funds. Earlier, the linkage benefit was available on maturity if held for 3 years, but from April 1 In 2023, the income from the debt funds is included in the category of short-term capital gain. Although the investment period may be anything. The profit from this investment will be added to the investor’s annual income, on which tax will be collected according to the tax schedule. After the government brought about this change, there was a steady exodus from credit risk mutual funds in the last year. B February 2024Departures worth 365.9 million rupees were seen in this category.

Returning the debt mutual Funds are affected by RBI’s policy rates. Changes in interest rates by the central bank affect the returns of debt funds such as credit risk Funds because wherever your money is invested, these companies should return it with the same rate of returns. If interest rates are high, yields may also rise along with risk.

Now let’s see how much return people have. According to the data as of today April 32024, DSP credit risk Foundation Gave returns of 15.5% in the last year, 9.45% in three years and 7.14% in five years. During this period, SBI credit risk Foundation gave returns of 8.68%, 6.31% and 6.59% respectively. Invesco India credit risk Foundation Gave returns of 8.12%, 6.1% and 5.37% in 1, 3 and 5 years respectively. Meanwhile, Nippon India credit risk Foundation gave a yield of 8.02%, 8.45% and 4.03%.

Now the question arises, what should investors do?

Remember that credit risk The funds are more risky compared to other debts Foundation types because these funds invest a significant portion of the portfolio in lower-rated companies. If you want to take some risk For higher returns, you can invest in such funds. Like a mine, you don’t need to invest credit risk Funds for returns are only 2-3% higher than debt funds.

According to market experts, dynamic bond funds can turn out to be a better option. The main objective of dynamic bond funds is to maximize returns in both rising and falling interest rate scenarios. Foundation The decisions of the manager and management depend on the changes made in the interest rates. God Foundation The manager adjusts the portfolio according to fluctuations in interest rates.

senior Foundation Pankaj Pathak, director at Quantum AMC, says you get the benefit of flexibility in dynamic bond funds in case things don’t go as expected. However, to avoid the risks of market fluctuations, investments should be made with a 2-3 year perspective. Short term and low –risk Options, you can invest in liquid funds.

Liquidity is the biggest problem in credit risk Funds because there is still no secondary market for lower-rated debt securities in the country. This makes it difficult to make changes to the case and sometimes even redemption becomes challenging. Considering the current market situation, Mukesh should consider switching to dynamic bond funds. For more information about this, you can seek help from a financial planner.

Published: April 19, 2024, 2:36 PM IST