Invest if net yield premium over safer funds is substantial

Double-digit return over the past year

- HIMALI PATEL

Credit risk funds have emerged as the best-performing debt fund category over the past year, with an average return of 10.5 percent. Schemes belonging to DSP (22.9 per cent), HSBC (21.6 per cent), and Aditya Birla Sun Life Mutual Fund (17.1 per cent) have generated exceptionally high returns over the past year. But experts caution investors against being swayed by these numbers and advise basing decisions on their risk appetite.

High returns may not sustain. Much of the recent outperformance stems from one-off factors. "They are largely due to write-backs after earlier credit defaults and write-offs. These returns are more of an accounting recovery rather than genuine, superior risk-adjusted performance," says Vidya Bala, cofounder, PrimeInvestor.in.

Fund managers concur. "High returns were driven by recoveries from IL&FS group debt instruments, such as Chenani Nashri, IL&FS Financial Services and other special purpose vehicles," says Lokesh Mallya, fund manager, SBI Mutual Fund.