Skip to main content

Credit Funds


Credit Opportunity Funds



Though this debt fund category has fared better than gilt funds in the past one year, its higher returns come with a higher risk factor as well.

With the central bank signalling a neutral interest rate stance in its latest monetary policy review, the rally in gilt funds has petered out. They have been knocked off their perch by credit opportunities funds, which have emerged the top performers in the debt funds space over the past one year. The category generated an average return of 9.6%.

Gilt funds and credit opportunities funds play on different aspects of the bond market. The former invest in longer maturity government securities that witness high capital appreciation in a softening interest rate environment.The latter focus on interest accrual--the income from coupon payments on underlying bonds--and typically invest in corporate bonds with a higher yield but lower rating (AA or below). Credit funds can also make some returns from capital gains, by looking for mismatches in the current rating of a bond vis-a-vis its fundamentals. If the credit rating of the underlying bond gets upgraded, due to the improving fundamentals of the underlying company, it results in appreciation in the bond's market price, boosting the fund's return. However, this tends to account for a smaller portion of the total return from these funds.

The cost of higher returns

With the interest rate easing all but over, the performance driver for debt funds has shifted from bond price appreciation to income accrual. Besides, what has worked in favour of credit funds is the lower volatility in returns, compared to gilt funds.

Several funds in the category have clocked more than 10% return over the past one year. However, they have taken greater risk to generate these returns, as is indicated by their exposure to lower-rated instruments (see table). BOI AXA Corporate Credit Spectrum and Franklin India Dynamic Accrual have invested 45% and 51% of their portfolio, respectively, in bonds rated `A and below'. The category's average exposure to this segment is around 31%. But while BOI AXA has also taken a healthy exposure of 22% in high safety AAA-rated bonds, Franklin India Dynamic has negligible investment in this segment. AAA rating indicates highest level of safety (little risk of default), while A and lower rating signifies a much higher default risk. Baroda Pioneer Credit Opportunities has loaded up on relatively safer AA rated instruments, comprising 56% of its portfolio, compared to the category average of 50%. Meanwhile, Aditya Birla Sun Life Corporate Bond holds around 40% of its portfolio in AAA-rated instruments--peers' holdings in the segment is just about 20%.

Why credit quality is a concern

The composition of the underlying portfolio of credit funds assumes great significance in the light of numerous instances of corporate loan defaults and credit rating downgrades. When underlying bonds witness rating downgrade, their price falls sharply, eroding the overall return from the debt fund. Companies may face ratings downgrade owing to deteriorating fundamentals--usually high debt levels and limited traction in cash flows.


Recently, companies such as IDBI Bank and Reliance Communications have seen ratings downgrades. With the credit profile of debt-riddled firms remaining weak, credit funds, in their bid to deliver high returns, are playing a high-risk game. Many credit funds are now carrying higher credit risk than they started with or intended to carry a few years ago.

The corporate credit upgradedowngrade ratio remains unfavourable. The terms and conditions governing these bonds have become more complex. And the liquidity position in these funds remains untested in the event of redemption pressure. Although credit opportunities funds are mostly immune to unfavourable yield movement, the risk of default in underlying compa nies continues to be high. "Unlike in other categories, like dynamic bond funds, the risk is far less visible in credit opportunities funds.In the event of a default, the hit may be significant. Investors should not get swayed by the higher returns being offered by this segment. Lack of opportunity in traditional debt funds that play on interest rate movements does not warrant a complete switch to the credit funds. If you wish to play the credit risk, avoid going for the overly aggressive funds that chase higher yields with con centrated exposure in very low rated instruments. If already invested in credit funds, rebalance in favour of cleaner credit at this juncture







Invest Rs 1,50,000 and Save Tax up to Rs 46,350 under Section 80C. Get Great Returns by Investing in Best Performing ELSS Funds. Save Tax Get Rich

Top 10 Tax Saver Mutual Funds for 2017 - 2018

Best 10 ELSS Mutual Funds to Invest in India for 2017

1. DSP BlackRock Tax Saver Fund

2. Tata India Tax Savings Fund 

3. Birla Sun Life Tax Relief 96

4. Sundaram Diversified Equity Fund

5. ICICI Prudential Long Term Equity Fund

6. Invesco India Tax Plan

7. Franklin India TaxShield 

8. Reliance Tax Saver (ELSS) Fund

9. BNP Paribas Long Term Equity Fund

10. Axis Tax Saver Fund


Invest in Best Performing 2017 Tax Saver Mutual Funds Online

Invest Best Tax Saver Mutual Funds Online

Download Top Tax Saver Mutual Funds Application Forms


For further information contact SaveTaxGetRich on 94 8300 8300

OR

You can write to us at

Invest [at] SaveTaxGetRich [dot] Com

OR

Call us on 94 8300 8300


Popular posts from this blog

ICICI Pru Mutual Fund Dividend

ICICI Prudential Mutual Fund has announced dividend under the following schemes: Scheme Dividend ( Rs /unit) ICICI Pru Capital Protection Oriented Ser V Plan B-D 0.03611325 ICICI Pru Capital Protection Oriented Ser V Plan B Direct-D 0.03611325 ICICI Pru Balanced Advantage Direct-DM 0.06 The record date has been fixed as February 08, 2017. ------------------------------ ------ Invest Rs 1,50,000 and Save Tax upto Rs 46,350 under Section 80C. Get Great Returns by Investing in Best Performing ELSS Funds Top 4 Tax Saver Mutual Funds for 2017 - 2018 Best 4 ELSS Mutual Funds to invest in India for 2017 1. DSP BlackRock Tax Saver Fund 2. Invesco India Tax Plan 3. Tata India Tax Savings Fund 4. BNP Paribas Long Term Equity Fund Invest in Best Performing 2017 Tax Saver Mutual Funds Online Invest Best Tax Saver Mutual Funds Online Download Top Tax Saver Mutual Funds  Application Forms For further information contact  SaveTaxGetRich on 94 8300 8300 ------------------------------ ------ Leave y...

What is Financial Freedom?

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)     There were many things common between our Freedom fighters. All had the Single vision (Free India), common goal (independence) and had a disciplined and focused approach. They were ready to do anything and everything and had made so many sacrifices to see India free . But the road to freedom was not easy .They had faced lot many hardships, went to jail so many times and even confronted physical and mental torture from the British. There was one more thing which proved to be an advantage to our fighters that most of them were professional lawyers. The knowledge of legal issues and its impact on our country at large has helped them counter various bills and proposed new laws by the then government. It is due to their continuous effort that we are able to achieve the goal of Independent Indi...

Hidden Bank Fees

  What Banks Hide From Customers Imagine after a peaceful and exciting holiday you receive your bank statement with steep charges. You then rush to your bank and start confronting staff members and to your dismay, you come to know that the high end debit card was charged very heavily. Wouldn't this cause damage to your finances? So remember, the world outside is full of deceptive and double cheating people. Unethical practices are always used by company sales person in order to meet the target. Credit card companies, mutual funds and bank institutions always play dirty tricks to lure customers and the practices are rampant. So here's how you should be careful while dealing with your banks: High End Debit Card Charges While opening an account with a bank you opt for a debit card with minimal charges. But later on when you upgrade your card and opt for high end debit card the annual charge rise by a good amount. Though such a card has slew of features but it all comes at a high ...

Partial withdrawal from PPF

  Public Provident Fund (PPF) account has a lock in period   If you opened a PPF account to meet your retirement needs,, think twice about withdrawing from this fund before retirement. But provided it's an emergency here are the rules. Public Provident Fund (PPF) account has a lock in period before which you cannot withdraw your money.   The partial withdrawal is allowed after the completion of 6 financial years . This means that you will be allowed a partial withdrawal from 1 April 2017. The maximum partial withdrawal allowed is the least of the following: 50 percent of the account balance at the end of fourth financial year, 31 March 15 50 percent of the account balance of the end of previous financial year, 31 March 17.   There's a loan option available on your PPF account between the fourth and the sixth financial year. You can obtain a loan of up to 25 per cent of the balance in your account. However, this will attract interest of 2 percent more than the prevailing ...

Updating a minor PAN card upon becoming adults

  Updating a minor's PAN card once they become adults A PAN card issued in the name of a minor does not contain the minor's photograph or signature, and therefore, cannot be used as a valid proof of identity. Once a minor PAN card holder turns 18, the relevant changes must be made in the PAN records. A new card is then issued bearing a photograph and signature. Application The applicant is required to fill up the "Request for new PAN card andor changes or correction in PAN data" form. The form can be filled up online by accessing NSDL's Tax Information Network website and clicking on the online PAN application tab. Information The applicant must mention the existing PAN number in the application and check the `photo mismatch' and `signature mismatch' boxes, and submit the online form. The form must also be printed out, signed by the applicant, and submitted along with two photographs. Documents Identity and address proof in the form of a copy of the app...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now