A credit risk fund is a type of mutual fund that tries to generate higher returns by investing in lower-rated corporate debt A credit risk fund is a type of mutual fund that tries to generate higher returns by investing in lower-rated corporate debt.
Such securities pay out a higher yield than high-rated corporate debt or government bonds which also carry lower risk. In return, a credit risk fund takes on the risk of default or downgrade on these securities.
These funds need a stable or improving credit environment to outperform other debt categories. According to the Securities and Exchange Board of India, credit risk funds must invest at least 65% of assets in papers rated below AA+.