INSUBCONTINENT EXCLUSIVE:
Credit-risk funds, which were the top performers among debt funds barely a year back, are now sitting at the bottom of the performance
The returns from these funds have been singed amid the fallout of the ILFS default and the spate of credit events that have followed
The differential is among the highest since the 2008 financial crisis, data from Bloomberg show
Most credit risk funds hold bonds rated AA and below, where yields have spiked sharply
Bond yields and bond prices move in opposite directions
A handful of credit risk funds had invested much lower down the credit ladder, which yields higher return but also carries higher risk of
magnified the category return earlier
the same corporate group have had a ripple effect in some fund portfolios.
Experts point out that buying has been concentrated in government
bonds and high-grade AAA corporate papers
headproducts, Kotak Mutual Fund
moderation in returns is in stark contrast to the high YTM most credit risk funds carried a year back
Some funds were exhibiting greater than 10% YTM in their portfolio
YTM of a credit fund portfolio, adjusted for the expense ratio, is often considered indicative of the actual return it is likely to fetch
However, the weak return profile shows that the higher YTM has not translated into actual return.
Experts maintain investors should not read
too much into the YTM profile of the debt fund
Bala insists that investors should be cautious about investing in high yield credit risk funds as the quality of the portfolio may be poor
Some fund managers are now exhibiting caution and moving towards higher grade papers, evident from the comparatively lower yield-to-maturity
