Credit risk funds back on investors’ radar, data shows



After seeing strong outflows in 2020, credit risk funds are once again on investors’ radar.

In 2021, they recorded net inflows of Rs 917 crore, compared to net outflows of Rs 35,710 crore in the previous year.



The strong outflows in 2020 came amid a series of corporate downgrades and defaults, driving risk aversion. Additionally, the Franklin Templeton Mutual Fund’s decision to liquidate six of its plans has caused further panic.

“After a long period, the category has started to see net positive flows again, albeit not very quantum, which could lead to the conclusion that the category may have managed to turn the corner in terms of releases,” said Morningstar in its report.

Net inflows into the category can also be attributed to the improved performance of credit risk funds over the past year, although yields remain under pressure due to accommodative monetary policies.

On average, credit risk funds have returned around 9.4% over the past year – the highest among other debt categories.

Few programs in the category have managed to generate double-digit returns in the past year.

Credit risk funds are debt schemes that take significant exposure (at least 65%) to lower rated companies (“AA” and below), with the aim of generating higher returns.

According to Morningstar, the funds that recorded the highest net inflows in 2021 were HDFC Credit Risk Debt (Rs 1,858 crore), followed by ICICI Prudential Credit Risk (Rs 1,223 crore) and UTI Credit Risk (Rs 157 crore). crore).

On the other hand, the funds that saw the highest outflows include SBI Credit Risk (Rs 550 crore), Nippon India Credit Risk (Rs 259 crore) and Kotak Credit Risk (Rs 81 crore).

Fund managers also say the credit space remains attractive to investors willing to take slightly higher risk in debt funds.

R Sivakumar, head of fixed income at Axis Asset Management Company, in a recent note, said that “credits remain an attractive game for investors with a three to five year investment horizon, as improving economic cycle and liquidity support mitigate credit risk”. concerns, especially in premium names. Although we remain selective in our selection and rigorous in our due diligence, we believe that the current environment is conducive to credit exposure”.

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