Top Corporate Bond Funds to Invest Online in 2024
Corporate mutual funds have emerged as an appealing investment choice, enabling investors to construct a debt portfolio comprising the top-rated corporate bond funds. These funds distinguish themselves as a distinct alternative for individuals seeking a balanced and profitable portfolio characterized by diverse investment opportunities. Let’s begin to understand corporate bond funds and how they work in a financial space.
Top Corporate Bond Funds in 2024 Based on 5Y CAGR
Let’s look at the best corporate bond funds in India 2024 that you can consider investing according to your goal and risk tolerance.
| Fund Name | Market Cap (in cr) | Expense Ratio (in %) | 3Y CAGR (in %) | 5Y CAGR (in %) |
|---|---|---|---|---|
| ICICI Pru Corp Bond Fund | ₹26,229.81 | 0.32 | 6.27 | 7.36 |
| HSBC Corporate Bond Fund | ₹5,985.83 | 0.30 | 5.34 | 7.34 |
| Aditya Birla Sun Life Corp Bond Fund | ₹21,330.37 | 0.33 | 5.92 | 7.33 |
| HDFC Corp Bond Fund | ₹28,968.10 | 0.35 | 5.82 | 7.28 |
| UTI Corporate Bond Fund | ₹3,547.50 | 0.29 | 5.58 | 7.18 |
| PGIM India Corporate Bond Fund | ₹100.55 | 0.29 | 5.69 | 7.00 |
| Nippon India Corp Bond Fund | ₹2,892.76 | 0.35 | 6.27 | 6.99 |
| Sundaram Corp Bond Fund | ₹19,003.28 | 0.32 | 5.27 | 6.97 |
| SBI Corp Bond Fund | ₹19,209.93 | 0.34 | 5.49 | 6.89 |
| Invesco India Corporate Bond Fund | ₹3,193.16 | 0.28 | 5.37 | 6.80 |
Disclaimer: Please note that the above list is for educational purposes only, and is not recommendatory. Please do your own research or consult your financial advisor before investing.
Note: The data on the top corporate funds is from 31st May 2024 and is derived from Tickertape Mutual Fund Screener.
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Brief Overview of the Top Rated Corporate Bond Funds
Let’s have a look at the best corporate bond funds in India down below:
ICICI Pru Corp Bond Fund
The ICICI Prudential Corporate Bond Fund Direct Plan-Growth represents a mutual fund scheme within the Corporate Bond category offered by ICICI Prudential Mutual Fund. With a tenure of 11 years and 2 months since its inception on 1st January 2013, this fund has established a reputable track record. The fund has a market capitalisation of Rs. 26,229.81 cr., positioning it as a medium-sized fund within its category. The fund maintains a competitive expense ratio of 0.32%, which aligns closely with prevailing industry standards for corporate bond funds.
HSBC Corporate Bond Fund
HSBC Corporate Bond Direct-Growth, offered by HSBC Mutual Fund, stands as a distinguished corporate bond mutual fund scheme. With a tenure spanning over 11 years and 2 months, since its inception on 1st January 2013, it has established a significant presence in the market. The fund has a market capitalisation of Rs. 6,175 cr., positioning it as a large-size fund within its category. Notably, the fund operates with an expense ratio of 0.30%. This aligns closely with the industry standard observed among other corporate bond funds.
Aditya Birla Sun Life Corp Bond Fund
Aditya Birla Sun Life Corporate Bond Fund Direct-Growth is a corporate bond mutual fund scheme offered by Aditya Birla Sun Life Mutual Fund. With a tenure of 11 years and 2 months since its launch on 1st January 2013, this fund has established itself as a prominent player in the market. The Aditya Birla Sun Life Corporate Bond Fund has a market capitalisation of Rs. 21,330.37 cr. It is a large-size fund within its category. The fund maintains a competitive expense ratio of 0.33%, aligning closely with industry standards for corporate bond funds.
HDFC Corp Bond Fund
HDFC Corporate Bond Fund Direct Plan-Growth, offered by HDFC Mutual Fund, is a distinguished corporate bond mutual fund scheme. This fund boasts a commendable track record, having been established for 11 years and 2 months since its inception on 1st January 2013. With a market capitalisation of Rs. 28,968.10 cr., this fund stands as a medium-sized entity within its category. Maintaining competitiveness within the market, HDFC Corporate Bond Fund Direct Plan-Growth carries an expense ratio of 0.35%.
UTI Corporate Bond Fund
UTI Corporate Bond Fund Direct-Growth represents a corporate bond mutual fund scheme offered by UTI Mutual Fund. Having commenced its operations on 23rd July 2018, this fund boasts a tenure of 5 years and 7 months. It manages assets worth Rs. 3,547.50 cr., positioning it as a mid-size fund within its category. The fund’s expense ratio is 0.29%.
PGIM India Corporate Bond Fund
PGIM India Corporate Bond Direct Plan-Growth, offered by PGIM India Mutual Fund, is a mutual fund scheme specializing in Corporate Bonds. Launched on 1st January 2013, this fund has a track record spanning 11 years and 2 months. It manages assets worth Rs. 100.55 cr., positioning it as a small-size fund within its category. With an expense ratio of 0.29%, PGIM India Corporate Bond Direct Plan-Growth aligns closely with the industry standard for corporate bond funds.
Nippon India Corp Bond Fund
Nippon India Corporate Bond Fund Direct-Growth is a mutual fund scheme focused on corporate bonds, managed by Nippon India Mutual Fund. With a track record spanning 11 years and 2 months since its inception on 1st January 2013, this fund has consistently provided investment opportunities. The fund has a market capitalisation of Rs. 2,892.76 cr., positioning it as a mid-size fund within its category. Notably, Nippon India Corporate Bond Fund Direct-Growth maintains a competitive expense ratio of 0.35%.
Sundaram Corp Bond Fund
The Sundaram Corporate Bond Fund Direct-Growth represents a distinguished offering within the Corporate Bond mutual fund landscape, administered by Sundaram Mutual Fund. The fund has been active for 10 years and 10 months since it was inaugurated on 13th May 2013. It commands assets under management (AUM) totalling Rs. 759.68 cr., positioning it as a mid-size fund within its category. With an expense ratio of 0.32%, Sundaram Corporate Bond Fund Direct-Growth aligns closely with the prevailing industry standard for Corporate Bond funds.
SBI Corp Bond Fund
The SBI Corporate Bond Fund Direct-Growth is a mutual fund scheme offered by SBI Mutual Fund, specifically focused on Corporate Bonds. Launched on 16 January 2019, it has a history spanning 5 years and 1 month. The fund has a market capitalisation of Rs. 19,003.28 cr., positioning it as a large-size fund within its category as of 31st May 2024. Notably, the fund maintains a competitive expense ratio of 0.34%, aligning closely with industry standards observed among other Corporate Bond funds.
Invesco India Corporate Bond Fund
The Invesco India Corporate Bond Fund Direct-Growth represents a corporate bond mutual fund offered by Invesco Mutual Fund. With a tenure spanning 11 years and 2 months since its launch on 1st January 2013, this fund has solidified its presence in the market. As of 31st May 2024, the fund has a market capitalisation of Rs. 3,193.16 cr. It is positioned as a medium-sized fund within its category. Thus, the fund maintains an expense ratio of 0.28%.
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What are Corporate Bond Funds?
Corporate bond funds are investment vehicles that pool money from investors to purchase a diversified portfolio of corporate bonds. These funds offer investors access to a wide range of corporate bonds, providing potential benefits such as portfolio diversification, professional management, and liquidity.
Features of Corporate Bond Mutual Funds
Here is a list of features of good corporate bond funds.
- Low Risk: Corporate bonds are generally a low-risk option, as the company’s creditworthiness backs them
- Flexibility: Corporate bond funds can be sold in the secondary market, enabling investors to sell their bonds before the maturity date.
- Diversification: These funds offer diversification by investing in a variety of corporate bonds issued by different companies across various sectors, which helps mitigate the risk associated with individual bond defaults.
- Tax Efficiency: Corp bond funds may offer tax advantages, particularly for investors in higher tax brackets. Interest income from corporate bonds held in the fund may be taxed at lower rates compared to other forms of investment income.
- Fixed Interest Payment: One of the biggest advantages of top-rated corporate bond funds is the fixed interest rates. These funds provide a stable source of income through regular interest payments from the bonds held in the portfolio.
Types of Corporate Bond Funds
If you want to invest in corporate bonds, there are various options available. Let’s examine them.
- Investment-Grade Bonds: These are issued by financially stable and reliable companies with high credit ratings (BBB- or higher by S&P, Baa3 or higher by Moody’s). They offer lower interest rates than high-yield bonds, but they are also considered to be much safer investments.
- High-Yield Bonds (Junk bonds): These are issued by companies with lower credit ratings (BB+ or lower by S&P, Ba1 or lower by Moody’s). High-yield bonds offer higher interest rates than investment-grade bonds.
- Convertible Bonds: These bonds can be converted into shares of the company’s common stock at a predetermined price. It gives investors the potential to profit from the company’s stock price appreciation, but they also expose themselves to the risk of the company’s stock price decline.
- Callable Bonds: These bonds give the issuing corporation the right to repurchase the bonds before the maturity date, usually at a premium to the face value.
- Zero-Coupon Bonds: These bonds do not pay interest periodically; instead, they are sold at a discount on their face value.
How to Invest in the Best Corporate Bond Funds in India?
Let us understand how you can invest in a corporate debt fund in India.
- Open a Demat Account: To start investing in the best corp bond funds, open a demat account providing necessary documents like identity proof, PAN Card, and address proof.
- Invest in Corporate Mutual Funds: Once your KYC is complete, you can invest in corporate bond mutual funds. Choose the fund that aligns with your investment goals and risk tolerance.
- Choose SIP or One-Time Investment: Decide whether you want to invest through a Systematic Investment Plan (SIP) or make a one-time lump sum investment.
- Fill in KYC Details: Provide the necessary details as required for investing in the corporate bond fund.
How Corporate Bond Fund Returns are Made?
Corporate bond funds primarily generate returns through two primary sources: accrual income and appreciation resulting from favourable movements in interest rates. Accrual income, typically assessed by the yield of bonds held in the fund’s portfolio, constitutes a significant portion of these returns. Thus, market forces typically determine bond yields by adding credit spreads to the risk-free returns of government securities with comparable maturities.
Thus, the credit spreads represent the additional premium for credit risk associated with the issuer company. By investing a minimum of 80% in top-rated companies, these funds aim to mitigate credit risk, thereby ensuring reasonable return expectations for investors.
Who Can Invest in the Best Corporate Bond Mutual Funds?
Before you start investing in corporate mutual funds, it’s crucial to understand the investor profile best suited for these funds. The categories of investors are as follows:
- Long Term Investors: Those with a long-term investment horizon may find corporate mutual funds a good option. These funds typically diversify their investments across bonds with varying maturity durations, presenting the opportunity for capital growth over time while also offering income through interest payments.
- Institutional Investor: Corporate bond funds can be suitable for institutional investors such as corporations, pension funds, and insurance organizations. These entities often possess substantial cash reserves for investment purposes.
- Active Management Investors: Investors who advocate for active fund management and favour professional fund managers making investment decisions may consider exploring corporate bond mutual funds. These funds employ active portfolio management strategies, wherein fund managers adjust holdings in response to market conditions and thorough analysis.
- Tax Efficiency: Investors who are mindful of tax implications can find advantages in corporate mutual funds. Engineered to optimize tax outcomes for investors with taxable income, these funds treat capital gains as part of investors’ tax brackets, irrespective of their investment duration. This presents an appealing investment avenue for individuals with lower incomes.
Risks of Corporate Bond Funds
The risk associated with a corporate bond mutual fund depends on the portfolio composition. If the fund manager selects all high-rated company bonds, the default risk factor is considerably lower.
However, targeting low-rated companies can lead to higher returns if managed effectively by the portfolio manager. Companies with lower credit ratings offer higher coupon values to attract investors. During favourable market conditions, skilled portfolio managers invest a significant portion of resources in such funds and withdraw funds if they anticipate fluctuations. This option can be suitable for individuals with a higher risk tolerance.
Benefits of Corporate Bond Funds
Some of the advantages of corporate bonds funds are as follows:
- Better Returns: Corporate bonds can typically offer better returns than government bonds. Many individual investors, especially retirees, buy and hold bonds to secure a steady income. They hold onto bonds until maturity, then reinvest the cash into new bonds.
- Liquidity: Another advantage of corporate bond funds is liquidity. Active bond traders can benefit from selling bonds that have risen in price or buying bonds after they decline in price. However, some corporate bonds are thinly traded, making profitable trading challenging. Investors selling corporate bonds should consider factors like interest rates, bond credit rating, and position size.
- Choice: Bond investors can choose short-term bonds (maturity of 5 years or less), medium-term bonds (5 to 12 years), or long-term bonds (more than 12 years).
Taxation on Best Corporate Bond Funds
As per the Income Tax Act, 1961, returns from mutual funds are subject to taxation upon receipt of dividends or redemption of mutual fund schemes. Dividend income is taxed at the prevailing regular tax rates applicable to the investor. Additionally, if the aggregate dividend payment from the mutual fund house to an investor exceeds Rs. 5,000 in a fiscal year, a TDS of 7.50% (reduced rate by the Government due to Covid-19 measures, applicable until March 31, 2021) is deducted on such dividend income.
The appreciation in mutual fund units is taxable under the category of ‘Income from Capital Gains’. Corporate bond funds are considered non-equity-oriented mutual funds for tax purposes, provided at least 80% of the portfolio comprises debt securities. Gains from such funds are categorized as either Short-Term Capital Gains (STCG) or Long-Term Capital Gains (LTCG), based on the duration of holding of mutual fund units.
Investors pay regular tax rates on the returns as Short-Term Capital Gains (STCG) for holding periods of less than 36 months. Conversely, for holding periods of 36 months or more, gains are classified as LTCG and taxed at 20% (plus applicable Cess and surcharge) with the benefit of indexation. Indexation effectively reduces investors’ overall tax liability on corporate bond fund returns.
Things to Consider Before Investing in Corporate Debt Mutual Funds
Here are a few points that you should consider before investing in the best corporate bond mutual funds.
- Risk Evaluation: Before investing in corporate mutual funds, consider the risks associated with the fund. Understand your fund’s creditworthiness, volatility, and underlying asset composition to gauge its overall risk profile. Remember to evaluate your risk tolerance.
- Expense Ratio: Evaluate the fund’s expense ratio, encompassing management fees and associated expenses. Opting for lower-cost ratios can potentially result in higher returns over the long term; therefore, choose funds with fees aligned with your investment objectives.
- Fund Manager: Assess the fund manager’s historical performance and expertise. A proficient and seasoned management team can significantly impact a fund’s success. Seek out patterns of reliable decision-making and a proven capability to navigate various market conditions.
- Asset Liquidity Assessment: Evaluate the liquidity of the fund’s underlying assets. High liquidity enables the fund to buy and sell shares with minimal impact on market prices. Thus, this aspect holds particular significance for investors requiring immediate access to their assets.
Limitations of Corporate Bond Mutual Funds
Here are a few limitations of corporate bond mutual funds that you should consider before investing.
- Lack of Control: Corp bond investors have limited control over fund management and decision-making processes. Unlike individual stock investments that may offer investors direct portfolio management capabilities, mutual fund investors have to rely on fund managers to make decisions on their behalf.
- High Fees and Expenses: Some corporate bond funds often impose fees, which can reduce overall returns for investors. These fees typically include an expense ratio covering high management fees, administrative costs, and sales charges.
To Wrap It Up…
In conclusion, corporate bond funds offer investors a valuable avenue to access fixed-income securities issued by corporations. With their potential for stable income, diversification benefits, and professional management, these funds can be an attractive option for those seeking a balance of risk and return in their investment portfolios.
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Frequently Asked Questions(FAQs) on Corporate Bond Funds
Based on the 5-yr CAGR, the top-rated corporate bond funds to invest in 2024 are:
(a) ICICI Pru Corporate Bond Fund
(b) HSBC Corporate Bond Fund
(c) Aditya Birla Sun Life Corp Bond Fund
(d) HDFC Corp Bond Fund
(e) UTI Corporate Bond Fund
Note: This list is for educational purposes only, and is not recommendatory.
The recommended investment tenure of corporate debt funds is 3+ years.
Corporate bond funds usually have medium risk, which typically falls between that of equity funds and traditional fixed-income investments such as government bonds.
When selecting a corporate bond fund, consider factors such as the issuer’s credit rating, bond yield, maturity duration, investment objectives and risk tolerance.
On average, Corporate Bond Funds have yielded annual returns of 7.81% over the past year. Their annualised returns over the last three and five years stand at 5.72% and 6.9%, respectively.
