Corporate bond funds are debt funds that invest at least 80% of the investment corpus in companies having the highest possible credit rating like AAA+, AA+ etc., rated companies. 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 top 10 corporate bond funds based on their recent performance and popularity.
Below mentioned are 10 top-performing corporate bonds that you should definitely invest in during the financial year of 2023 – 2024:
|Corporate Bond Fund||5-Year Annualised Returns|
|HSBC Corporate Bond Fund||7.65%|
|Aditya Birla Sun Life Corporate Bond Fund||7.29%|
|HDFC Corporate Bond Fund||7.11%|
|ICICI Prudential Corporate Bond Fund||7.04%|
|Sundaram Corporate Bond Fund||6.89%|
|Kotak Corporate Bond Fund||6.78%|
|Nippon India Corporate Bond Fund||6.63%|
|Axis Corporate Debt Fund||6.51%|
|Aditya Birla Sun Life Corporate Bond Fund||7.29%|
|Franklin India Corporate Debt Fund||6.48%|
|PGIM India Corporate Bond Fund||6.00%|
*Disclaimer: Mutual fund investments are subject to market risks, read all scheme related documents carefully.
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.
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.
The HSBC Corporate BondFund 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:
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:
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:
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:
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:
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:
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.
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:
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:
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.
*Data as of 24 January 2023
Expected return rate (p.a)
Time Period (Years)
Here are some of the benefits of corporate bond funds:
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.
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.
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.
Discussed below are crucial points that could help investors to choose the best corporate bond funds:
Given below are crucial points related to who will likely want to invest in corporate bond funds:
Corporate bonds have the same tax liabilities as debt funds. The minimum holding period for short term capital gains in debt funds is 3 years. If the holding period is less than 3 years, the STCG is taxed as per the applicable income tax rate of the investor based on the tax slab. LTCG (Long-Term Capital Gains) are taxed at 20% with indexation benefits. Here are the tax implications in detail:
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
Ans: 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.
Ans: 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.
Ans: 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.
Ans: 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.
Ans: 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).
Ans: 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.
Ans: 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.
Ans: 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.
Ans: 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.
Ans: 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.
Ans: The ideal period to stay invested in corporate bond funds is usually between 1 and 4 years.
Ans: 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.
Ans: 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.
Ans: 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.
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