Investors have made tidy returns in debt funds over the past year, thanks to the sharp fall in interest rates. But a hunt for higher returns seems to have taken funds towards riskier instruments.
A look at the credit profile of debt funds shows that more money has flowed into high-yielding but low-rated corporate bonds over the past year. The total corpus, or assets under management (AUM), of AA and below-rated bonds, across all open-ended debt funds put together, has grown a whopping 58 per cent to ₹1.6 lakh crore. AUMs of safer AAA rated bonds grew a lower 28 per cent.
Bonds with AAA rating are considered to have the highest degree of safety, and carry the lowest credit risk.
While AAA rated bonds still form the chunk of the overall corpus, its share has fallen by 7 percentage points over the past year, to 56 per cent. The share of AA and below-rated bonds have inched up 2 percentage points to 16 per cent as of February 2017.
