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Best Credit Risk Mutual Funds

Credit risk mutual funds are a type of debt fund that invests in low-rated corporate bonds or fixed income-generating securities. The primary objective of these schemes is to outperform other debt mutual funds that invest in high-quality fixed-income securities. The underlying financial instruments feature a credit rating below AA and are associated with high default risk. The best credit risk mutual funds require a steady environment to generate higher returns than other types of debt funds.

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Top 10 Credit Risk Mutual Funds

Fund NameCategoryRisk1Y ReturnsRatingFund Size(in Cr)
HDFC Credit Risk Debt Fund DebtModerately High9.2%5star8,607
ICICI Prudential Credit Risk FundDebtHigh7.7%5star8,053
SBI Credit Risk FundDebtHigh6.7%4star3,380
Axis Credit Risk FundDebtModerately High7.9%4star741
Nippon India Credit Risk FundDebtHigh15.2%4star1,014
Baroda Pioneed Credit Risk FundDebtModerate21.4%3star206
Kotak Credit Risk FundDebtHigh7.9%3star1,818
IDFC Credit Risk FundDebtModerate5.9%3star840
L&T Credit Risk FundDebtModerate6.8%3star183
DSP Credit Risk FundDebtModerately High4.1%3star251
Invesco India Credit Risk FundDebtModerate4.3%3star126
PGIM India Credit Risk FundDebtModerate12.0%2star45
IDBI Credit Risk FundDebtModerately High18.3%2star49
UTI Credit Risk FundDebtModerate23.0%1star612
UTI Credit Risk FundDebtModerateN.Astar0
View All Top 10 Credit Risk Mutual Funds

Features of Credit Risk Mutual Fund

Here are some features of credit risk mutual funds:

Asset allocation: According to the Securities and Exchange Board of India (SEBI) guidelines, credit risk mutual funds must allocate at least 65% of the fund corpus in corporate bonds with a rating below AA+. 

Risk-reward ratio: The underlying low-rated corporate bonds have the potential to generate higher returns than debt securities with a better credit rating. Moreover, the top credit risk mutual funds involve lower interest rate risk when compared to the other debt funds.  These schemes benefit when ratings of these financial instruments are upgraded. Fund managers of top credit risk mutual funds control the average credit quality of these schemes to minimise the chances of default. 

Taxability

Short-term Capital Gains Tax: If investors redeem their units before 3 years, the returns they earn are added to their taxable income and taxed per their slab rate. 

Long-term Capital Gains Tax: When investors sell their units after a holding period of 3 years, the returns are known as long-term capital gains. A tax rate of 20% is applicable on these gains, and individuals are eligible for indexation benefits.

Who Are These Funds Suited For?

Since credit risk mutual funds invest in corporate bonds with a low rating, they’re associated with a high risk of default. If the underlying securities are upgraded, these schemes generate returns via interest income as well as capital gains. However, there’s a high possibility of a downgrade in credit rating due to non-repayment of principal amount or delay in interest payment. In such cases, the performance of these funds is severely impacted. Hence, even the best credit risk mutual funds may not be suitable for investors with low-risk tolerance. Nevertheless, there are certain aspects apart from the risk profile that investors need to consider before allocating their savings to any of the best credit risk mutual funds 2021

Investment goals: Credit risk funds aim to generate higher returns than other types of debt funds by investing in securities that are of low quality. The financial goals of all investors are not the same. Investors with a moderate to high-risk appetite may want to earn higher returns than what these schemes can generate. In such cases, they may opt for other options. Hence, it’s vital that investors identify their financial goals before parting with their savings. 

Assets under management (AUM): Funds with a high AUM can diversify their portfolio as much as possible, thereby minimising the risk. Hence, it is vital for investors to consider the AUM of different schemes besides other essential factors when choosing which is the best credit risk mutual fund for them.

Fund manager: Fund managers of the best credit risk mutual funds are responsible for formulating effective investment strategies to achieve the scheme objective efficiently. They use various risk management techniques and carry out thorough research and analysis to take prudent buy-and-sell decisions that can maximise the portfolio return of investors. A fund manager with a proven track record and many years of experience have the potential to produce the best possible results. Hence, one must make sure to check a fund manager’s previous performance.

Expense ratio: The expense ratio is a maintenance fee that asset management companies (AMCs) levy on investors to finance a scheme’s operating and administrative expenses. It is a small percentage of a fund’s total assets. The higher the expense ratio, the lesser will be the returns. Hence, investors must consider the expense ratio when allocating their funds to a credit risk fund. 

Fund history: When browsing the best credit risk mutual funds, investors must check their historical returns. A fund that has been able to deliver consistently since its inception is likely to offer the best possible results. Hence, one must consider that past performance does not guarantee future performance. It just gives us an idea of how has the fund performed to various economic conditions in the past.

Exit load: Exit load refers to a penalty fee levied by a fund house if investors sell their units, fully or partially, within a specific period from the date of purchase. This penalty is charged to discourage investors from withdrawing from a scheme prematurely. The exit load of all credit risk funds is not the same. Investors must know the exit load of a scheme before investing in it. 

Direct or regular plan: Direct plans are what investors directly allocate their funds to; they do not involve any broker or distributor. One has to facilitate the transaction via third parties if they choose a regular plan. In the case of a direct plan, fund houses do not need to pay any commission to brokers and distributors as opposed to regular plans.  Hence, they feature a lower expense ratio and report a higher NAV than regular plans of the best credit risk mutual funds.

Major Advantages

Here are some advantages of investing in credit risk mutual funds:

High returns than other debt funds: These funds invest in debt securities that have a low credit rating. Accordingly, they are associated with default risk. Nevertheless, to compensate for the high risk, the underlying corporate bonds have a premium coupon rate. 

Tax benefits: STCG earned from a credit risk mutual fund is liable for taxation per the investor’s tax slab. However, LTCG is taxed at a flat 20% rate + indexation benefits. This contrasting tax treatment between STCG and LTCG is particularly beneficial for investors in the highest tax bracket since they have to pay only 20% tax on their gains, saving 10% in tax outgo. 

Investment route: One can invest in the best credit risk mutual funds via two ways, namely Systematic Investment Plan (SIP) and lump sum. By choosing the SIP mode, investors can allocate their funds in a scheme by paying fixed monthly/quarterly/yearly instalments. Contrarily, the lump sum mode allows investors to buy scheme units by making a one-time payment.

Let's have a closer look

Now let us jump and check about these top 10 mutual fund schemes.

HDFC Credit Risk Debt Fund Direct Growth

Fund Performance: This fund has given 9.78% annualized returns in the last three years. In the last year, its returns were 9.22%. It has continually hit its benchmark in the Debt segment.

Why to invest: It is one of the most remarkable Debt mutual funds in India. This fund has constantly outperformed other similar funds, providing 9.22% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹5,000. Minimum SIP investment amount required for this scheme is ₹500.

Min Investment Amt₹5,000
AUM8,607Cr
1Y Returns9.2%

ICICI Prudential Credit Risk Fund Direct Plan Growth

Fund Performance: This fund has given 9.51% annualized returns in the last three years. In the last year, its returns were 7.67%. It has continually hit its benchmark in the Debt segment.

Why to invest: It is one of the most remarkable Debt mutual funds in India. This fund has constantly outperformed other similar funds, providing 7.67% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹100. Minimum SIP investment amount required for this scheme is ₹100.

Min Investment Amt₹100
AUM8,053Cr
1Y Returns7.7%

SBI Credit Risk Fund Direct Growth

Fund Performance: This fund has given 8.16% annualized returns in the last three years. In the last year, its returns were 6.74%. It has continually hit its benchmark in the Debt segment.

Why to invest: It is one of the most remarkable Debt mutual funds in India. This fund has constantly outperformed other similar funds, providing 6.74% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹5,000. Minimum SIP investment amount required for this scheme is ₹500.

Min Investment Amt₹5,000
AUM3,380Cr
1Y Returns6.7%

Axis Credit Risk Fund Direct Growth

Fund Performance: This fund has given 7.76% annualized returns in the last three years. In the last year, its returns were 7.91%. It has continually hit its benchmark in the Debt segment.

Why to invest: It is one of the most remarkable Debt mutual funds in India. This fund has constantly outperformed other similar funds, providing 7.91% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹5,000. Minimum SIP investment amount required for this scheme is ₹1,000.

Min Investment Amt₹5,000
AUM741Cr
1Y Returns7.9%

Nippon India Credit Risk Fund Direct Growth

Fund Performance: This fund has given 3.79% annualized returns in the last three years. In the last year, its returns were 15.19%. It has continually hit its benchmark in the Debt segment.

Why to invest: It is one of the most remarkable Debt mutual funds in India. This fund has constantly outperformed other similar funds, providing 15.19% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹500. Minimum SIP investment amount required for this scheme is ₹100.

Min Investment Amt₹500
AUM1,014Cr
1Y Returns15.2%

Baroda Credit Risk Fund Plan B Direct Growth

Fund Performance: This fund has given 8.93% annualized returns in the last three years. In the last year, its returns were 21.43%. It has continually hit its benchmark in the Debt segment.

Why to invest: It is one of the most remarkable Debt mutual funds in India. This fund has constantly outperformed other similar funds, providing 21.43% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹5,000. Minimum SIP investment amount required for this scheme is ₹500.

Min Investment Amt₹5,000
AUM206Cr
1Y Returns21.4%

Kotak Credit Risk Fund Direct Growth

Fund Performance: This fund has given 8.45% annualized returns in the last three years. In the last year, its returns were 7.87%. It has continually hit its benchmark in the Debt segment.

Why to invest: It is one of the most remarkable Debt mutual funds in India. This fund has constantly outperformed other similar funds, providing 7.87% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹5,000. Minimum SIP investment amount required for this scheme is ₹1,000.

Min Investment Amt₹5,000
AUM1,818Cr
1Y Returns7.9%

IDFC Credit Risk Fund Direct Growth

Fund Performance: This fund has given 8.28% annualized returns in the last three years. In the last year, its returns were 5.88%. It has continually hit its benchmark in the Debt segment.

Why to invest: It is one of the most remarkable Debt mutual funds in India. This fund has constantly outperformed other similar funds, providing 5.88% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹5,000. Minimum SIP investment amount required for this scheme is ₹1,000.

Min Investment Amt₹5,000
AUM840Cr
1Y Returns5.9%

L&T Credit Risk Fund Direct Growth

Fund Performance: This fund has given 5.52% annualized returns in the last three years. In the last year, its returns were 6.84%. It has continually hit its benchmark in the Debt segment.

Why to invest: It is one of the most remarkable Debt mutual funds in India. This fund has constantly outperformed other similar funds, providing 6.84% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹10,000. Minimum SIP investment amount required for this scheme is ₹1,000.

Min Investment Amt₹10,000
AUM183Cr
1Y Returns6.8%

DSP Credit Risk Direct Plan Growth

Fund Performance: This fund has given 3.72% annualized returns in the last three years. In the last year, its returns were 4.08%. It has continually hit its benchmark in the Debt segment.

Why to invest: It is one of the most remarkable Debt mutual funds in India. This fund has constantly outperformed other similar funds, providing 4.08% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹500. Minimum SIP investment amount required for this scheme is ₹500.

Min Investment Amt₹500
AUM251Cr
1Y Returns4.1%

Invesco India Credit Risk Fund Direct Growth

Fund Performance: This fund has given 3.64% annualized returns in the last three years. In the last year, its returns were 4.33%. It has continually hit its benchmark in the Debt segment.

Why to invest: It is one of the most remarkable Debt mutual funds in India. This fund has constantly outperformed other similar funds, providing 4.33% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹1,000. Minimum SIP investment amount required for this scheme is ₹1,000.

Min Investment Amt₹1,000
AUM126Cr
1Y Returns4.3%

PGIM India Credit Risk Fund Direct Growth

Fund Performance: This fund has given 4.62% annualized returns in the last three years. In the last year, its returns were 12.04%. It has continually hit its benchmark in the Debt segment.

Why to invest: It is one of the most remarkable Debt mutual funds in India. This fund has constantly outperformed other similar funds, providing 12.04% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹5,000. Minimum SIP investment amount required for this scheme is ₹1,000.

Min Investment Amt₹5,000
AUM45Cr
1Y Returns12.0%

IDBI Credit Risk Fund Direct Growth

Fund Performance: This fund has given 3.19% annualized returns in the last three years. In the last year, its returns were 18.3%. It has continually hit its benchmark in the Debt segment.

Why to invest: It is one of the most remarkable Debt mutual funds in India. This fund has constantly outperformed other similar funds, providing 18.3% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹5,000. Minimum SIP investment amount required for this scheme is ₹500.

Min Investment Amt₹5,000
AUM49Cr
1Y Returns18.3%

UTI Credit Risk Fund Direct Growth

Fund Performance: This fund has given -4.69% annualized returns in the last three years. In the last year, its returns were 23%. It has continually hit its benchmark in the Debt segment.

Why to invest: It is one of the most remarkable Debt mutual funds in India. This fund has constantly outperformed other similar funds, providing 23% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹5,000. Minimum SIP investment amount required for this scheme is ₹500.

Min Investment Amt₹5,000
AUM612Cr
1Y Returns23.0%

UTI Credit Risk Fund Segregated Portfolio 4 Direct Growth

Fund Performance: In the last year, its returns were NA. It has continually hit its benchmark in the Debt segment.

Why to invest: It is one of the most remarkable Debt mutual funds in India. This fund has constantly outperformed other similar funds, providing NA returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹5,000. .

Min Investment Amt₹5,000
AUM0Cr
1Y ReturnsNA

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