Credit risk funds are a category of debt mutual funds that invest at least 65 per cent of their portfolio in lower than AA-rated papers. According to the Sebi definition, credit risk funds are open-ended debt schemes investing in below the highest-rated corporate bonds. This means that these schemes can generate high returns by taking higher credit risk. Lower-rated papers generate high returns when their ratings move up. However, there are also chances of downgrades and defaults in these papers ..
