Credit risk funds became steadily more popular with investors after 2016, when fixed deposit rates declined post demonetization, so that some 7.2 per cent of debt fund money, amounting to almost Rs 80,000 crore, sat in credit risk funds in April 2019.
Data on this category was not separately reported by the Association of Mutual Funds in India for previous years. However, Sanjay Sapre, CEO of Franklin Templeton Mutual Fund, in a Mint column on 17 July 2019 wrote that they had grown at a compound annual growth rate of 51 per cent since their inception in 2002. The category witnessed an inflection point in FY20. Hit by downgrades and defaults in groups such as DHFL, Sintex BAPL, Altico, Reliance ADAG, Vodafone Idea and Yes Bank, investors began exiting these funds.
Over this period, the category shed about 30 per cent of its assets under management (AUM) to reach Rs 55,380 crore at the end of March. In March itself, investors pulled out Rs 5,568 crore from credit risk funds, data shows. The decline in these funds was mirrored by a dramatic growth in banking and public sector debt funds, which focus on relatively low-risk debt issued by banks and public sector enterprises. These funds must invest at least 80 per cent of their assets in the debt of such issuers. These funds saw their AUM double from Rs 35,682 crore in April 2019 to Rs 72,475 crore in March 2020.
Lower risk appetite has also resulted in investors falling back on bank deposits as a safe avenue to park funds, even as deposit rates have declined in recent months.
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