Tipping Point: What are credit ratings of debt mutual funds?

Just as individual bonds have credit ratings, debt mutual funds too have credit ratings. Basically, they provide a third-party opinion to investors on the expected probability of default of the securities that are part of the fund’s portfolio. Most investors only look at the past returns of funds. At a time when interest rates on bank fixed deposits and other fixed-income instruments are falling, they gravitate toward bt funds that have given high returns in the recent past, such as credit opportunities funds. However, investors need to understand that some of these funds come with higher risks, especially in the current environment where the credit profile of many corporates is worsening. 

What should you do?

Investors should look up the credit rating of a debt fund and select one that matches their risk appetite and investment horizon.

Business Standard