Credit risk funds: Opt if net yield premium over safer funds is substantial

Investors with high risk-bearing capacity may allocate 5-10% of their fixed-income portfolio

Credit risk funds have emerged as the best-performing debt fund category over the past year, with an average return of 10.5 per cent. Schemes belonging to DSP (22.9 per cent), HSBC (21.6 per cent), and Aditya Birla Sun Life Mutual Fund (17.1 per cent) have generated exceptionally high returns over the past year. But experts caution investors against being swayed by these numbers and advise basing decisions on their risk appetite.

 

High Returns May Not Sustain

 

Much of the recent outperformance stems from one-off factors. “They are largely due to write-backs after earlier credit defaults and write-offs. These returns are