look news india
New Delhi: Most mutual fund schemes, including credit risk debt and some medium duration funds, may deliver returns of over 8.5 per cent per annum in the coming years as fund managers increase exposure to lower-rated securities in this category. As of April-end, the average yield to maturity for credit risk funds was 8.4 per cent and 7.9 per cent for medium duration funds.
Prime Database data shows that mutual fund investments in AA and below securities at the end of December 2023 were Rs. 45,641 crores and at the end of April 2024, Rs. 51,360 crores. By 2024, investors have so far withdrawn about Rs. 1350 crores despite this increase.
The fund managers said, our credit risk fund aims to generate returns while focusing on growth. Hence, securities rated AA and below form the core of the portfolio as they are expected to generate relatively high returns. Over the past few years, private corporates have reduced debt and their balance sheets are in good shape. We will continue to invest in these securities as per profit opportunities.
We follow a top-down approach while determining our credit allocation for the portfolio. Today, we are comfortable in the credit cycle due to improving corporate profits, strong growth cycle and better demand scenario. 'The spreads for AA- and A-rated assets are attractive and hence, keeping in mind the good credit cycle and attractive spreads, we have increased our exposure to AA- and A-rated assets.
While most mid-to-long-term debt funds have been struggling to attract exposure due to weak yields over the past three to four years and tax changes last year, the biggest blow to credit risk funds came from the Franklin Templeton fund crisis. As per SEBI rules, credit risk funds are required to invest at least 65 per cent in securities rated AA and below.
