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Top 10 Best Performing Corporate Bond Fund

Explain Corporate Bond Debt Funds

Any company can raise funds (for daily operations or future expansion) via equity, debt or bank loans. In equity, the company will affect shareholders, bank loans are expensive, so companies take the path of debt or corporate bond or NCDs (Non-Convertible Debentures).

Corporate Bonds are borrowing money from you on interest. The company will return the principal after the maturity period and pay interest twice a year.

Corporate Bond Debt Funds invest in AA+ and above corporate securities. Like stock trading, there is a debt market, where one can trade various bonds. The price of bonds can rise or fall. You can get dual benefit in case the price of bond rise then capital appreciation + Interest income.

The Corporate Bond Debt Funds carries low risk, provides liquidity and volatility, and can generate reasonably stable returns compare to bank FD or bank deposits.

Asset Allocation

80 to 100% of assets are parked under AA+ rated corporate bonds (bonds, debentures, commercial papers and structured obligations, etc) (low to medium risk profile). 0 to 20% of assets are allocated to Government Securities (low to medium risk profile). 0 to 10% of assets are allocated to REITs and InvITs (medium to high-risk profile).

Benefits of Corporate Bond Debt Funds

  • Return – Corporate Bond Funds are stable funds and average return is 8 to 10 % in 1 year's time This return is better than Bank FDs and deposit.
  • Low Risk –Investment is done on highly rated companies (AA+ and above).
  • Investment Horizon – Corporate Bond Funds are for short to medium term Investment Horizon which is between 12 to 24 months.
  • Tax – Corporate Bond Funds are Debt Funds. You need to pay short team capital gain when invested for up to three-year window. Short team gains are added to the income and taxed at the income tax slab applicable to the investor. The long team gain calculated when the investment is done for more than 3 years; LTCG is 20% with indexation benefit.
  • Cost – Compare to Equity or Hybrid fund, Debt fund has a low expense ratio.

Consideration of Corporate Bond Debt Funds

  • Fund Performance is majorly depending on the Interest rate. In case interest rates decrease, the NAV of the securities increase and vice versa. In a rising interest rate scenario, the fund manager tries to increase its investment in Money Market Securities. In the scenario where interest rate is going to fall, FM increases its investment in debt securities.
  • There is always a risk of defaulting or issue with company rating downgraded by CRSIL. The longer the residual maturity period, more risk is associated with bonds.

Why to invest in Corporate Bond Debt Funds?

The Corporate Bond Debt Funds invest major assets in AA+ rated corporate bonds, short-term to medium-term maturity instruments, focus on high credit quality, high liquid options make them low-risk investment. You will get better return from your bank FDs and Deposit. Stable return for short team investment. The investor should choose Top AMC and check the portfolio and do an in-depth analysis before investing in Corporate Bonds. Investing in Corporate Bonds with previous performance will not add any value, factors like interest rate, liquidity, credit risk are few factors which impact the performance of corporate bonds.

Who can invest in Corporate Bond Debt Funds?

These funds suits to investors who are looking higher return from bank deposits, without taking significantly higher risks. The investment horizon is 1 to 2 yrs. One who is looking for low volatility and steady returns Corporate Bond Debt Funds is the best fit.

We suggest to plan your clear exit (both in up or down) with corporate bonds and regularly check the health of your portfolio.

In this section, we have defined "Top 10 Best Performing Corporate Bond Funds" in India. The calculation is done based on difference of current NAV and 30 days prior NAV. This is not an average return.

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Disclaimer: We personally suggest you to start SIP, so you can average your NAV. The above list is not a recommendation of funds, nor does it claim to the only correct way to rank funds. Please check the complete risk document of Mutual Funds and their current exposure to market before doing your investment.

Last updated on 29-Jul-21

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