What are Credit Risk Mutual Funds?

Debt funds that invest in low-credit quality debt securities Equity funds that invest in high-growth stocks Balanced funds that invest in both stocks and bonds Index funds that track a specific market index

Why do Credit Risk Funds invest in low-credit quality securities?

To achieve higher potential returns due to higher interest rates To minimize risk and ensure capital preservation To track a specific market index To provide tax benefits to investors

What is a key characteristic of instruments considered to carry higher credit risk?

They have a credit rating below AA They offer lower interest rates They are highly liquid They are issued by government entities

How do Credit Risk Funds benefit from credit rating upgrades?

The NAV of the fund can increase The fund's expense ratio decreases The fund's risk profile becomes more conservative The fund's tax liability is reduced

What is a potential advantage of investing in Credit Risk Funds for investors in the highest tax slab?

Long Term Capital Gains (LTCG) are taxed at 20% Dividends are tax-free Investments are exempt from capital gains tax Short-term gains are taxed at a lower rate

What is a potential drawback of Credit Risk Funds?

They have more liquidity risks They offer lower returns than risk-free debt investments They are not subject to market risks They are not suitable for long-term investments

What role does the fund manager play in Credit Risk Funds?

Selecting the low-rated securities to invest in Guaranteeing a minimum return on investment Eliminating credit risk entirely Tracking a specific market index

How do Credit Risk Funds aim to mitigate interest rate risk?

By investing in securities with fixed interest rates By actively trading securities based on interest rate movements By diversifying across different asset classes By focusing on short-term debt instruments

What is a potential benefit of Credit Risk Funds compared to debt funds that invest in higher-rated bonds?

They have the potential to outperform in terms of returns They offer lower risk and volatility They are more tax-efficient They are more liquid and easier to trade

What type of investor might find Credit Risk Funds suitable?

Investors seeking higher returns from fixed-income investments Investors with a low risk tolerance Investors with a short-term investment horizon Investors seeking capital preservation