Have limited exposure to credit risk funds, select the fund manager well

These funds are meant only for those who understand their risks

In the July-September quarter, investors redeemed Rs 8,032 crore from the credit risk category. These funds seek to generate higher returns by taking additional credit risk. They invest in lower-grade debt papers. Most Indian investors who enter debt funds want steady returns that beat fixed-deposit returns post-tax. They also want minimum volatility. 

Clearly, most of them should not invest in the credit risk category just because it is showing higher returns (as they have done in the past). 

At present, investors are exiting these funds because their returns have diminished and multiple incidents of corporate defaults have shaken