Features of Credit Risk Mutual Fund
1. Riskier: Credit Risk Mutual Funds are considered riskier investment schemes as they are those funds that invest in bonds that have AA or lower credit ratings, which signifies higher risk.
2. Diversification: Credit Risk Mutual Funds give you a mixed character for the portfolio. The portfolio comprises both bonds that invest in AA or lower rating bonds and 35% of proceeds are invested in different classes of assets, which helps the investor to diversify its portfolio.
3. Credit Risk: It is the risk that is associated with the borrower of the loan. It indicates the inability of the borrower to repay the debt/loan amount. In case the issuer of securities defaults, the mutual fund may not receive the due amount in full, this may reflect a negative result on the NAV of the scheme.
4. Volatility: Credit Risk Mutual funds temper the portfolio volatility as they adjust the price fluctuations.
5. Non-Biased: The Credit Risk Mutual Funds are non-biased as the decision of selection of low-rated securities is taken by the fund manager and the expertise of AMC, which leads to the selection of the best wealth-generating fund for the investor.
6. Less Liquid: Due to the lower credit quality of the underlying bonds of credit-risk debt funds, these bonds are not likely to be easily sold in the market. Therefore, credit risk funds may have liquidity limitations presented as compared to other debt funds, especially those that invest in high-credit-quality papers.