Credit risk funds have always been vulnerable to its investments of up to 65% (and more) in the lower-rated instruments. To earn higher returns than the rest of the debt categories, the fund manager buys high-yielding, low credit quality bonds. The fund manager hopes the bonds would get an upgrade as it will increase the bond’s mark-to-market price value in the secondary market. He is also expecting that the issuer of these bonds will not default on their dues - both principal and interest pay-out. However, things have not clearly worked out well for most of the credit risk funds and their managers.
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