Credit risk funds halve in five months

Suresh P Iyengar Mumbai | Updated on June 16, 2020

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The turbulence in the debt market has more than halved the assets under management (AUM) of credit risk funds in May to ₹30,469 crore from ₹61,611 crore in January.

The redemptions which were about ₹2,000 crore each in January and February suddenly shot up to ₹6,200 crore and ₹19,507 crore in March and April as Franklin Templeton Mutual Fund on April 23 announced plans to wind up six of its debt funds abruptly, leaving investors in the lurch.

However, the central bank’s stance of a softer interest rate regime to support corporates reeling under the impact of Covid-19 had slowed the redemptions to ₹5,264 crore in May. In fact, credit risk funds had mobilised fresh investments of ₹3,980 crore and ₹5,100 crore respectively, in the first two months of this year before it fell drastically to ₹710 crore in March and ₹268 crore in April.

It further slipped to ₹92 crore in May.

The tide seems to have turned in favour of mutual funds. With risk aversion hitting the peak amid Covid-19, some of the top-rated bonds have rallied, pushing up the returns from most credit risk funds in the last one month.

SBI and Aditya Birla Credit Risk Funds delivered annualised return of 18 per cent each while Kotak and Axis Credit Risk Fund gave 17 per cent and 15 per cent return in the one-month ended June 12. ICICI and HDFC Mutual Funds returned 13 per cent to investors.

However, only ICICI and Axis Mutual Funds maintained consistent return of 9 per cent and 8 per cent respectively, over the last one year. In fact, only three credit funds UTI (-26 per cent), Nippon India (-10 per cent) and Franklin Templeton (-6 per cent) delivered negative returns.

Manish Banthia, Senior Fund Manager (Fixed Income), ICICI Prudential Mutual Fund, said the risk-adjusted returns at this juncture looks favourable for credit schemes given the current spread between credit risk schemes’ year-to-maturity (YTM) and repo rate which is at an elevated level, providing an attractive investment opportunity.

Kavitha Krishnan, Senior Analyst, Manager Research, Morningstar India, said the RBI measures to ensure that liquidity levels in the economy are maintained are positives for credit risk funds, but it is difficult to predict how long it might take for investor interest in the category to revive. However, the positive measures should help reinstate confidence in the category, she added.

Joydeep Sen, Founder of, said diversification in portfolio holdings on both the asset and liability sides besides superior client selection, have helped a few credit risk funds ride through the rough weather.

Apart from discipline in investment, successful credit funds have not chased higher YTMs in their investment decisions, he added.

Published on June 16, 2020

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