Credit risk funds could be risky but not all credit risk funds are alike, says Dhirendra Kumar
Are credit risk funds risky in today's pandemic time? I have invested in DSP Credit Risk Fund about two and half years back with very little gains. Should I move out of it?
- Sanjeev Deshpande
Yes, credit risk funds could be risky but not all credit risk funds are alike. I would suggest you visit Value Research's website, search for your specific fund's page and look for the fund's allocation to lower-rated papers.
Lower-rated bonds face the risk of delinquency, i.e. the company which has borrowed the money by issuing these bonds may fail to repay the principal and interest on time. So, if these funds have a larger allocation to lower-rated papers, then it's time to worry as you can have bigger problems with such funds. However, if credit risk funds are modestly invested in very high-rated credit, they might yield lower returns but the possibility of any default is unlikely.
So, I would say that you should evaluate credit risk funds. DSP Credit Risk Fund has had some issues earlier, which has actually lowered its returns. I would suggest going to your fund's portfolio page on valueresearchonlne.com and you'll see its credit-rating breakup. So, first evaluate and decide accordingly.