Credit risk funds: Should you invest?

Credit risk schemes saw fund outflows for around 18 months due to redemption pressures. In the last one year, the outflows have stemmed, and inflows have started. Also, credit risk funds have given one of the best returns in the debt fund category in the last one year. This article explores whether it is time to consider credit risk funds for investment.

During 2018-20, we saw one of the worst corporate credit default cycles. It all started with IL&FS defaulting on bond repayment in August 2018. Other corporates like Anil Dhirubhai Ambani Group (ADAG), Dewan Housing Finance Limited (DHFL), Yes Bank, Altico, etc., also defaulted. In 2020, the COVID-19 pandemic, the resulting lockdowns, and the slowdown in economic activity worsened the corporate default cycle. Among the worst affected by these defaults were credit risk funds exposed to these corporates, and the investors who invested in these funds.  Now that the economic cycle has turned and redemption pressure has eased, have credit risk funds become worthy of investment again? If yes, what factors should you consider before investing? Let us start by understanding what is cre...


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