INSUBCONTINENT EXCLUSIVE:
Investors with appetite for risk could put money into credit risk funds which could return about 9% in the next one year
This debt scheme category, which invests predominantly in lower rated papers, has seen sharp outflows in recent times because of a slew of
defaults and ratings downgrades in the wake of the IL-FS fiasco.
“Valuation is attractive due to higher spread of the schemes, yield to
maturity (YTM) over the repo rate,” says Sankaran Naren, executive director, ICICI Prudential Mutual Fund.
Credit risk funds, which invest
at least 65% of their corpus into AA+ funds and lower, have seen outflows of .₹8,000 crore in the last three months
As investors poured money into quality paper and fund houses to buy more AAA rated paper and government bonds, the spread between AAA rated
paper and other securities has increased sharply
In the current scenario, fund managers point out that while a AAA rated paper gives a yield of 7.25%, an AA paper could give yields of 9%
and an A rated paper could give 10%
These spreads are the highest in the last decade
For instance, the current spread of the portfolio of ICICI Prudential Credit Risk – one of the biggest in the category – over the repo
is as high as 4.91%, the highest since December 2010
The average spread is 2.9%.
“The credit market is tight and good companies at higher yields
Fund houses with good process for credit evaluations should be preferred,” said Rupesh Bhansali, head (distribution), GEPL Capital.
He
recommends ICICI Prudential Credit Risk Fund and Franklin India Credit Risk Fund, which have given returns of 8.85% and 8.37% over the last
one year.
In the last one year, investors have lost money in credit risk funds
For instance, Boi Axa Credit Risk Fund lost as much as 48% of its value, while many others lost 2-5%.
Returns ScorecardScheme1-year return
(%)AUM (Rs Cr)IDFC Credit Risk9.381,319ICICI Prudential Credit Risk8.8410,942Kotak Credit Risk8.734,916HDFC Credit Risk 8.7215,066Franklin
India Credit Risk8.466,928Source: Value Research | Returns are for direct plans