So do you buy expensive things without warranty? No, right?
Similarly, as an investor, you should not invest in financial instruments and securities that carry low Credit Ratings.
What is a Credit rating? It is a measure of the financial stability of an entity. Does it earn enough revenue to pay back its borrowers? How ethical does it conduct its business? How well has it repaid its past debts and borrowings? What are its future forecasts for business success?
Many such questions decide the Credit Rating of a company or a financial instrument. A credit rating can be assigned to any entity that seeks to borrow money—an individual, corporation, state or provincial authority, or sovereign government.
AAA, AA, A – Good Credit Rating
BBB, BB – Average Credit Rating
B, C, D – Low Credit Rating
So before you decide to invest your money in company bonds, fixed deposits, debt mutual funds or credit risk mutual funds check out their credit rating.