Corporate Bond Funds: Invest in High-Quality Debt

What is a Corporate Bond Fund?

A Corporate Bond Fund is a debt mutual fund which invests a primary part of its portfolio in the highest-rated corporate bonds. With highest rated securities these funds minimise credit risk.

Advantages of Corporate Bond Funds

Good returns

These funds have the potential to generate attractive returns on your investment which helps in growing your corpus with added stability.

Liquidity

High-rated bonds are traded in volume making the fund easily liquid. So, if you need quick funds, you can redeem your investments without losing out on potential returns

Low credit risk

Since the fund invests in high-rated bonds, the credit risk is minimal. Bonds carrying a high credit rating have proven track record of repayment and do not tend to default.

Maturity Choices

Allow investors to choose funds investing in corporate bonds with varying maturity periods: short-term (under 5 years), medium-term (5-12 years), and long-term (over 12 years).

Corporate Bond Funds Returns Calculator

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Disclaimer: Projections/estimations is backtested using historical data.

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Understanding Corporate Bond Funds

Table of Contents

What are Corporate Bond Funds?What are the features of Corporate Bond Funds?Things to keep in mind when investing in Corporate Bond Funds What are the types of risks that Corporate Bond Funds face?What is the tax implication of Corporate Bond Funds?What are the payout options?

What are Corporate Bond Funds?

A type of open-ended debt mutual fund, a Corporate Bond Fund invests at least 80% of its portfolio in corporate bonds rated AAA or above by reputed credit rating agencies. These funds offer stable and attractive returns with limited credit risks.

What are the features of Corporate Bond Funds?

Offers stable returns on investment with minimal credit risk
Flexibility to own differing duration securities minimises credit risk
There’s no capping on the maximum investment amount
You can get better returns compared to fixed deposits
The funds aim to grow the portfolio through interest earned and also through the rise in the price of the underlying securities

Things to keep in mind when investing in Corporate Bond Funds

Check the expense ratio of such schemes. A high ratio eats into the fund’s returns and should be avoided

Compare Corporate Bond Funds on their returns. A fund with the highest return is better

Check the portfolio for the credit rating of the underlying securities

What are the types of risks that Corporate Bond Funds face?

Credit risk

Risk of default on the debt instrument
Interest rate risk

Risk of rising interest rates, which reduces the value of debt instruments
Inflation risk

Risk of inflation reducing the returns from the debt fund
Liquidity risk

Risk of not being able to trade in debt instruments

What is the tax implication of Corporate Bond Funds?

Returns earned are taxed at your income tax slab rates
Dividends earned, if any, are taxed at your income tax slab rate

What are the payout options?

Dividend option

Earn dividends on your investment at regular intervals
Growth option

Accumulate the returns over the investment tenure and get a lump sum amount on redemption

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FAQs On Corporate Bond Funds

Corporate Bond Funds are debt funds that invest a minimum of 80% of their portfolio in companies with the highest credit ratings.

The bond price of a Corporate Bond Fund is the present value of the bond’s future cash flows.

Corporate Bond Funds invest in bonds of companies with the highest of credit ratings up to at least 80% of their holdings.

Corporate Bond Funds are taxed like any other debt fund. Upon redemption of a fund with holding period of less than 36 months (short term capital gain), you would be taxed at the prevailing tax slab rates. In the case of long term capital gains, i.e. redemption of funds with holding period of 36+ months, the tax rate applicable is 20%.

Yes, you can redeem your Corporate Bond Fund investment at any time.