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I am depressed about my investments in credit risk funds. Please help.

Take risks with equity and look at fixed income in a more conservative way, says Dhirendra Kumar

My friend and I have Rs 32 lakhs invested in ICICI Prudential Credit Risk Fund and Kotak Credit Risk Fund. Please advise what I should do. I am depressed. Please guide me.
- Shashi

The risk in credit risk funds has come about. Although these funds are not particularly facing any credit crisis, in the light of the current risk aversion, investors have been running for cover and everybody is queuing up towards safer debt funds.

In fact, credit risk funds have been facing redemptions since March. ICICI Prudential Credit Risk Fund has fallen from the high of about Rs 12,500 crore in March to Rs 6700-6500 crore currently. Likewise, Kotak Credit Risk Fund has also been witnessing redemptions. While they have been decent performers based on their three-year returns, these numbers do not matter in a situation where every investor is worried about their principal.

So, investors are understandably concerned. Everybody thinks that anything which is rated AA or below is untouchable and there is absolutely no market for such lower-rated papers. Having said that, credit risk funds have been able to honour the outflows so far.

Further, all AMCs have been preparing themselves with greater liquidity and have sought SEBI's permission to increase their allocation towards gilts even in credit risk funds. And I am hopeful that with the kind of preparedness they have, they are unlikely to face any major liquidity crisis immediately. But with many people pulling their money out and bad news coming from all around, this kind of exodus itself tends to become the biggest risk for mutual funds and they are facing it right now.

Particularly answering your question regarding these investments causing depression, this is quite alarming. Our investments are supposed to help us do things better and find greater independence and not to cause depression. I would like to add that one should take all risks with equity and look at fixed income in a more conservative way. So, I would say that even though the risk may have reduced, fund companies may have prepared themselves with greater liquidity and these funds may see higher returns against the backdrop of falling interest rates, you should still take your money out.

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