Venturing into the deep: Credit funds chase 8.5% yields in risk-heavy seas

Money managers set sail with lower-rated papers in a rising corporate tide

Most credit risk debt mutual fund (MF) schemes and some medium-duration funds are likely to deliver over 8.5 per cent annualised returns in the coming years as fund managers increase exposure to lower-rated papers in these categories.

At the end of April, the average yield-to-maturity (YTM) stood at 8.4 per cent for credit risk funds and 7.9 per cent for medium-duration funds.

Yields-to-maturity indicate future returns.

Data from PRIME Database shows that MF exposure to AA and below-rated papers has risen from Rs 45,641 crore at the end of December 2023 to Rs 51,360 crore in April 2024. This increase