10 Best Corporate Bond Funds in India to Invest in April 2023
Corporate bond funds are debt funds that invest at least 80% of the investment corpus in companies that have high credit ratings like AAA+, AA+ etc or non-convertible debentures. These ratings are based on the financial stability of the companies and their ability to pay off their loan within the due time. Corporate bonds are ideal for investors with a low-risk appetite.
Interested in investing in corporate bond funds? We have curated a list of 10 best corporate bond funds 2023 based on their current 5-year annualised returns
10 Best Corporate Bond Funds in India 2023
Below mentioned are some of the best corporate bonds 2023 that you may consider investing in.
| Corporate Bond Fund | 5-Year Annualised Returns |
| HSBC Corporate Bond Fund | 7.6% |
| Aditya Birla Sun Life Corporate Bond Fund | 7.4% |
| HDFC Corporate Bond Fund | 7.3% |
| ICICI Prudential Corporate Bond Fund | 7.3% |
| Axis Corporate Debt Fund | 7.3% |
| Sundaram Corporate Bond Fund | 7.2% |
| Kotak Corporate Bond Fund | 7.1% |
| Franklin India Corporate Debt Fund | 7.0% |
| Nippon India Corporate Bond Fund | 7.0% |
| PGIM India Corporate Bond Fund | 6.8% |
*Disclaimer: Mutual fund investments are subject to market risks, read all scheme related documents carefully.
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How Do Corporate Bond Funds Work?
These funds are basically open-ended debt funds that invest 80% of the corpus in the high-rated companies. These ratings are given by credit bureaus like CRISIL, ICRA, CARE, etc.
Investors in a corporate bond fund pool their money together to buy a portfolio of these bonds, which are held by the fund. The fund then uses the interest income from the bonds to pay dividends to its shareholders. Since corporate bond funds invest in high-rated debt securities, the risk is lower compared to equity investments. However, these funds are subject to interest rate risks based on their duration.
The asset allocation differs based on the fund objective.
Example:
Here’s how HDFC Corporate Bond Fund asset allocation looks like – 97% investment in debt, of which 27.9% is invested in Government securities and 69.1% is invested in low-risk securities.
Performance of Best Performing Corporate Bond Funds 2023
1. HSBC Corporate Bond Fund
The HSBC Corporate Bond Fund scheme invests predominantly in AA+ and above rated corporate bond instruments with an aim to generate returns matching the investment objective. The scheme follows a balanced approach for security selection to achieve optimal risk-adjusted returns. Let’s look into the scheme details:
- NAV: ₹65.06
- AUM: ₹6,772.33 Cr
- Expense Ratio: 0.29%
- 3-Year Annualised Returns: 5.6%
- 5-Year Annualised Returns: 7.6%
2. Aditya Birla Sun Life Corporate Bond Fund
Aditya Birla Sun Life Corporate Bond Fund is a debt fund that aims to generate long-term capital growth without experiencing the volatility of the equity market. This scheme is ideal for investors with an investment horizon of 3 years or more. Let’s look into the scheme details:
- NAV: ₹95.61
- AUM: ₹12,120.62 Cr
- Expense Ratio: 0.31%
- 3-Year Returns: 6.6%
- 5-Year Annualised Returns: 7.4%
3. HDFC Corporate Bond Fund
The scheme aims to generate capital growth through investments predominantly in AA+ and above rated companies. The scheme is ideal for investors looking for long term capital growth. Here are the scheme details:
- NAV: ₹27.62
- AUM: ₹23,486.54 Cr
- Expense Ratio: 0.32%
- 3-Year Annualised Returns: 6.2%
- 5-Year Annualised Returns: 7.3%
4. ICICI Prudential Corporate Bond Fund
This scheme is suitable for investors who aim to invest in AA+ companies or above rated companies to achieve goals like regular income and short term savings without experiencing the volatility of the equity market. Here are the scheme details:
- NAV: ₹26.03
- AUM: ₹16,998 Cr
- Expense Ratio: 0.30%
- 3-Year Annualised Returns: 6.6%
- 5-Year Annualised Returns: 7.3%
5. Axis Corporate Debt Fund
The scheme has 96.02% investment in debt of which 22.47% is in Government securities and 73.59% is in low-risk securities. It is ideal for investors who are looking for long-term capital growth but prefer less-riskier assets compared to equity funds. Let’s check out the scheme details:
- NAV: ₹14.97
- AUM: ₹3,783.06 Cr
- Expense Ratio: 0.22%
- 3-Year Annualised Returns: 6.7%
- 5-Year Annualised Returns: 7.3%
6. Sundaram Corporate Bond Fund
This scheme is suitable for investors who seek stable returns with a possibility of capital gains over the medium to long-term with an investment horizon of 3 years or more. The scheme could be considered as an alternative to illiquid tax-free bonds. Let’s check out the scheme details:
- NAV: ₹35
- AUM: ₹996.12 Cr
- Expense Ratio: 0.28%
- 3-Year Annualised Returns: 6.0%
- 5-Year Annualised Returns: 7.2%
7. Kotak Corporate Bond Fund
The fund seeks to generate income and capital appreciation largely through a focus on investments in corporate debt securities. Like most corporate debt bonds, this scheme also invests in AA+ and above rated corporate bonds. Let’s find out the scheme details:
- NAV: ₹3,276.24
- AUM: ₹8,880.90 Cr
- Expense Ratio: 0.32%
- 3-Year Annualised Returns: 5.9%
- 5-Year Annualised Returns: 7.1%
8. Franklin India Corporate Debt Fund
This fund is ideal for investors looking for long-term capital appreciation prefer less riskier assets compared to equity funds. You need to stay invested for 3 years or more to realise the actual potential of the scheme. Let’s look into the scheme details:
- NAV: ₹89.30
- AUM: ₹748.22 Cr
- Expense Ratio: 0.21%
- 3-Year Annualised Returns: 5.8%
- 5-Year Annualised Returns: 7.0%
9. Nippon India Corporate Bond Fund
The primary objective of this scheme is to generate income through investments predominantly in debt instruments of various maturities maximise income. This scheme is ideal for investors having an investment horizon of 3 years or more.
- NAV: ₹52.11
- AUM: ₹1,701.58 Cr
- Expense Ratio: 0.32%
- 3-Year Annualised Returns: 6.3%
- 5-Year Annualised Returns: 7.0%
10. PGIM India Corporate Bond Fund
PGIM India Corporate Bond Fund is a scheme that aims to generate income by investing in AA+ rated corporate bonds. This fund is ideal for investors having an investment horizon of 3 years or more.
- NAV: ₹40.11
- AUM: ₹49.03 Cr
- Expense Ratio: 0.29%
- 3-Year Annualised Returns: 6.1%
- 5-Year Annualised Returns: 6.8%
*Data taken from respective AMC websites on March 31, 2023. Sata for illustrative purposes only. Past performance is no guarantee of future returns.
Disclaimer: Mutual fund investments are subject to market risks, read all offer documents carefully.
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Benefits of Investing in Corporate Bond Funds
Here are some of the benefits of corporate bond funds:
1. Defend Yourself from Market Volatility
These funds can be a lower-risk option to obtain exposure to corporations than equities. Corporate bonds and Australian equities are frequently negatively correlated, with corporate bonds funds falling as share prices rise and vice versa. As a result, allocating a portion of one’s portfolio to corporate bonds can make one’s portfolio more ‘defensive’ – returns will be smoother and less unpredictable, especially during periods of market volatility.
3. Potential to Generate Higher Returns
They are likely to offer investors a higher excess yield than term deposits and government bonds in the medium term. However, it should be noted that the AMP Corporate Bond Fund is a managed investment program with a risk profile that differs from a bank term deposit. Furthermore, they are well-positioned to gain from the global economy’s sustained recovery, thanks to strong company fundamentals.
3. Reduced Risk of Capital Loss
In a rising interest rate environment, active bond managers deploy a variety of levers to mitigate downside risk. The ability of a manager to modify the ‘duration’ of a bond portfolio is the most important of these. The sensitivity of a bond’s capital value to a change in interest rates over time is measured in years.
As a result, when interest rates rise, portfolios with a longer-term lose more money. An investment manager can seek to minimize the risk of capital loss in a rising interest rate environment by managing the fund’s length – or lowering the fund’s duration.
Factors to Consider While Choosing Corporate Bond Funds
Discussed below are crucial points that could help investors to choose the best corporate bond funds 2023:
- Investors need to check the past performances of a corporate bond fund to get an idea about its expected returns. But, they need to remember that a good performance in the past in no way guarantees a good performance in the future.
- Corporate bond funds invest in corporate bonds which typically have medium to long term maturity periods. As a result, these funds are a suitable investment option for a medium-long investment horizon.
- It is also important to assess the past performance of the fund manager before investing in this bond fund. He should be knowledgeable and experienced enough to select the right instruments to balance risks and returns based on the prevalent market situation.
- The risks associated with such funds differ with the quality of their underlying bond investments. Higher-rated debt instruments carry low risks but provide below-average returns. Although lower-rated bonds carry higher risks, they offer higher returns in exchange.
- Don’t forget to check the expense ratio as it is the costs associated with the fund management that the AMCs deduct from the returns that investors receive. Often, AMCs (Asset Management Companies) charge an exit load to discourage premature withdrawals. It is the amount that investors need to pay if they wish to redeem their units before a certain time.
Who Should Invest in Corporate Bond Funds?
Given below are crucial points related to who will likely want to invest in corporate bond funds:
- Investors who have a low-risk appetite and wish for stable and regular returns can consider investing in such funds.
- Investors with an investment tenure of more than 3 years should consider investing in such funds to receive its benefits.
- These debt funds are also ideal for people who wish for a high degree of safety from credit risk.
Final Word
Corporate bond funds are low-risk investments as they primarily invest in the highest-rated bonds. By investing in them, investors can add a stable source of income to their portfolios.
However, you should assess your financial goals, risk appetite and investment horizon before putting your money to work. Alternatively, you can start investing with Navi Mutual Fund. Navi is home to a wide-range of low-cost funds across sectors and geographies. Just download the Navi app, explore the funds, select as per your goals, and start investing with Rs.10!
*Disclaimer: Mutual Fund investments are subject to market risks; read all scheme-related documents carefully before investing
FAQs
Bonds are generally advertised as being less risky than stocks, and they are for the most part, but that doesn’t mean you can’t lose money if you invest in them. When interest rates rise, the issuer experiences a negative credit event, or market liquidity dries up, bond prices fall.
That payout ensures a high level of income security. Price is less variable. Bonds are less volatile than stocks, and they fluctuate in response to a variety of factors such as interest rates (more below). Stocks are less hazardous.
Bonds are considered to be less risky than stocks in general for various reasons: bonds carry the issuer’s pledge to restore the face value of the instrument to the holder at maturity, whereas stocks do not.
Bonds are considered to be less hazardous than stocks for a variety of reasons, including the issuer’s promise to return the face value of the instrument to the holder at maturity, which stocks do not.
Liquidity accounts for up to 14 percent of a corporate bond’s yield during calm markets, but over 30 percent during recessions and other periods of financial stress, according to Friewald et al. (2012).
A credit rating is the opinion of a specific credit agency concerning the willingness and ability of an entity (individual, business or government) to fulfil its monetary obligations within the due date. The rating also denotes a company’s chance of defaulting.
Indexation is the process through which you can recalculate the purchase price of an asset to adjust it for inflation. Individuals are eligible for indexation benefits in case of long term capital gains from investments in debt funds. This benefit reduces investors’ tax liability.
You can invest in these funds using the following methods:
1. Lump-sum – This involves making a one-time investment in a mutual fund. A person having high-risk tolerance and substantial disposable money can choose to invest through this method.
2. SIP – Individuals can invest in mutual funds at regular intervals (monthly, half-yearly, yearly or quarterly) through a systematic investment plan (SIP). This method lets you benefit from rupee cost averaging, which makes sure you get more shares when the prices are low and vice versa.
Par value denotes the minimum amount at which a company issues the corporate bonds to the investors. It is also known as a nominal or face value.
Example: An organisation issues corporate bonds with a par value of Rs. 90 per bond, and an investor holds 1000 fund units. The business organisation has to repay Rs. 90,000 to the investor on maturity.
A bond issuing company pays the interest rate, known as coupon rate, on the bond’s face value.
Example: If an investor has a ten year- Rs. 3,000 corporate bond with 10% as the coupon rate, he will get Rs. 300 every year for ten years. The market’s bond price will not have an impact on the coupon rate.
The ideal period to stay invested in corporate bond funds is usually between 1 and 4 years.
Corporate bond funds have 80% of their corpus invested in highest rated companies. It is considerably a low-risk investment as it ensures capital protection. So it is comparably a safer option for long term investment with higher returns.
Corporate bond funds are debt funds that invest 80% of its corpus in high-rated corporate bonds. These funds primarily invest in AA+ and above rated corporate bonds and non-convertible debentures and offer investors an opportunity to realise long-term capital growth without the volatility of the equity market.
The top 5 corporate bonds in India include:
1. HSBC CorporateBond Fund
2. HDFC Corporate Bond Fund
3. Aditya Birla Sun Life CorporateBond Fund
4. ICICI Prudential Corporate Bond Fund
5. Sundaram Corporate Bond Fund
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Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
