Watch out for credit risk in corporate debt paper

Betting on high-risk debt, investing in an MF with high credit risk can hurt in current environment

Recent reports suggest several companies are defaulting on interest payments to investors (see box). This, and the fact that returns from fixed income instruments are falling steadily, is likely to make fixed income investors quite unhappy. There could be a temptation to invest in riskier papers, to get more return. However, this isn’t the best time to do so.

When evaluating a company’s offering (fixed deposit, debenture, etc) look closely at its credit rating. “Our strong belief is that investors should only go for bonds with the highest credit rating, even if that means giving up a few basis points