Understanding Credit Risk and Corporate Bond Funds Offered by Mirae Asset Mutual Fund

The difference between credit risk funds and corporate bond funds offered by Mirae Asset mutual funds, or any mutual fund house, lies primarily in their risk profiles, the types of bonds they invest in, and the associated returns. Understanding these differences can help investors make more informed decisions based on their risk tolerance and investment objectives. Here’s a detailed breakdown:

Credit Risk Funds

Investment Strategy: Credit risk funds invest at least 65% of their total assets in bonds with lower credit ratings, typically rated AA or below. These bonds offer higher interest rates to compensate for the higher risk of default.

Risk Profile: These funds carry higher credit risk as they invest in bonds issued by companies with relatively lower credit ratings. However, they aim to generate higher returns by taking on this additional risk.

Return Potential: Because of the lower credit rating of the underlying bonds, these funds offer the potential for higher returns but with the risk of defaults or downgrades affecting performance.

Suitability: Suitable for investors with a high-risk appetite who are looking for better returns over the long term but are willing to accept the possibility of volatility and credit defaults.

Corporate Bond Funds

Investment Strategy: Corporate bond funds invest at least 80% of their total assets in high-rated corporate bonds, typically rated AA and above. These bonds are issued by companies with strong credit profiles, which makes them more secure.

Risk Profile: These funds carry lower credit risk compared to credit risk funds because they invest in high-quality, highly-rated corporate bonds. The chances of default or credit downgrades are significantly lower.

Return Potential: Since corporate bond funds invest in highly-rated bonds, the returns are usually moderate and stable reflecting the lower risk. The returns are generally lower than credit risk funds but more reliable.

Suitability: Suitable for conservative investors or those with a moderate risk tolerance seeking steady income with relatively lower risk of credit events.

Key Differences

Aspect Credit Risk Funds Corporate Bond Funds

Primary Focus Bonds rated AA or below Bonds rated AA and above Risk Level High due to lower-rated bonds Low to Moderate due to high-rated bonds Return Potential High but with potential for volatility and default risk Moderate stable and predictable returns Investor Suitability Aggressive investors with high-risk tolerance Conservative to moderate-risk investors

Mirae Asset offers both types of funds to cater to different investor needs. Credit risk funds are for those seeking higher returns and willing to take on more risk, while corporate bond funds offer safer, more stable investment options with lower returns.

Whether you’re looking to maximize returns or minimize risk, understanding the differences between credit risk funds and corporate bond funds can guide you to choose the right investment option for your financial goals.