What is the role of credit ratings in debt mutual funds?

What is the role of credit ratings in debt mutual funds?

  1. Credit ratings play a crucial role in debt mutual funds by assessing the creditworthiness of the bonds and debt instruments in which the fund invests.
  2. Higher-rated securities (such as AAA) indicate lower credit risk, while lower-rated securities (such as BB or below) carry higher risk but may offer higher returns.
  3. Fund managers use credit ratings to make investment decisions, balancing risk and return to achieve the fund’s objectives.
  4. Additionally, investors rely on credit ratings to evaluate the safety and risk level of a debt mutual fund before investing.

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