Swarup Mohanty, Chief executive officer, Mirae Asset Global Investments (India) Pvt. Ltd
With higher return comes higher risk
Credit risk is one of the main risks associated with debt fund investing. Over the last few years, we have seen its reference going up. This is due to the fact that returns from top-rated securities have been coming down and to generate higher returns, portfolios have started investing in lower-rated papers. While investing, fund managers do their own rating process, which ideally is independent from that of any external rating agencies, to form their own opinion and invest. Note that rating is always an opinion and not any guarantee. The recent IL&FS downgrading should be a great learning for investors—it is a rating downgrade at the moment and not a default. Due to the downgrade, net asset values (NAVs) fell as valuations of the paper changed.
