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Investors should take limited exposure in credit risk funds.
Return from the credit risk fund category has declined to 5.06% over the past year.
This is much lower than their three-year category average return of 7.25% and five-year average of 8.31%.
The asset-under management of this category has also declined by 10% from Rs 91,031 crore in August 2018 to Rs 81,951 crore at the end of February 2019.
No doubt the outflows are also correlated to the defaults by IL&FS and its subsidiaries and the subsequent liquidity squeeze.
These events brought investors face-to-face with credit risk. Investors who have just moved from fixed deposits to debt funds should avoid credit risk funds altogether.
For most investors, 80% to 85% of their investments in debt funds should be in funds that do not take either credit or duration risk.
Investors should take limited exposure in credit risk funds.
