InvestorQ : How do you see the appetite for credit risk funds getting impacted in the coming months?
Debbie Mascarenhas made post

How do you see the appetite for credit risk funds getting impacted in the coming months?

Answer
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Crowny Pinto answered.
4 months ago


To cut a long story short, Templeton fiasco represents all that could possibly go wrong with a credit risk fund. They allowed MF flows to dictate their investment strategy and had a number of funds with different sounding names but effectively credit risk funds. Most of the short duration and medium duration funds had more than 40% exposure to “AA” rated debt and lower. There was no link between investment objective of the fund and the portfolio. These funds had even invested in illiquid structured products with long lock-in periods. Not surprisingly, investors are really unhappy and jittery about the way credit risk funds are handled. Going down the rating curve to earn higher returns may appear like a simple strategy but it only works in good times. In times like COVID-19 when growth slows and defaults increase, the counter side of credit risk becomes apparent. But the good news is that a handful of credit risk funds of SBI, ICICI and HDFC which did not take undue risks are still doing quite well. The choice matters ultimately.