Best Corporate Bond Funds Based on 5Y CAGR (2025)
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 Based on 5Y CAGR
Let’s look at the best corporate bond funds in India that you can consider investing according to 5-yr CAGR:
| Fund Name | Market Cap (Rs. in cr) | Expense Ratio (in %) | 3Y CAGR (in %) | 5Y CAGR (in %) |
|---|---|---|---|---|
| Axis Corp Bond Fund | 6,132.90 | 0.32 | 7.00 | 7.19 |
| Aditya Birla SL Corp Bond Fund | 24,978.52 | 0.33 | 6.96 | 7.14 |
| ICICI Pru Corp Bond Fund | 29,133.56 | 0.35 | 7.19 | 7.04 |
| Nippon India Corp Bond Fund | 6,195.39 | 0.36 | 7.11 | 7.02 |
| HDFC Corp Bond Fund | 32,420.80 | 0.36 | 6.78 | 6.96 |
| Kotak Corporate Bond Fund | 14,223.39 | 0.34 | 6.78 | 6.67 |
| PGIM India Corp Bond Fund | 94.77 | 0.28 | 6.59 | 6.65 |
| Bandhan Corp Bond Fund | 13,914.40 | 0.33 | 6.10 | 6.56 |
| UTI Corporate Bond Fund | 4,778.69 | 0.29 | 6.54 | 6.51 |
| SBI Corp Bond Fund | 20,302.63 | 0.34 | 6.55 | 6.48 |
Disclaimer: Please note that the above table is for educational purposes only, and is not recommendatory. Please do your own research or consult your financial advisor before investing. The data is derived from Tickertape Stock Screener and is subject to real-time updates.
Note: The data on the top corporate funds is from 18th February 2025 and is derived from Tickertape Mutual Fund Screener using the following filters:
- Plan: Growth
- Category: Corporate Bond Fund
- 5Y CAGR: Sorted from Highest to Lowest
🚀 Pro Tip: You can use Tickertape’s Mutual Fund Screener to research and evaluate stocks with over 200+ filters and parameters.
Brief Overview of the Top Rated Corporate Bond Funds
Let’s have a look at the best corporate bond funds in India down below:
Axis Corp Bond Fund
Axis Corp Bond Fund invests largely in corporate debt securities while keeping a watch on credit standing and market swings. Its portfolio selection process involves studying factors such as a company’s earnings potential, balance sheet strength, and the overall economic landscape. The fund aims to balance returns with controlled risk by focusing on issuers that fit its moderate-to-high credit requirements.
Aditya Birla SL Corp Bond Fund
Aditya Birla Sun Life Corporate Bond Fund is an open-ended debt scheme that primarily invests in high-quality corporate debt securities, aiming to generate regular income and potential capital appreciation over the medium term. The portfolio typically includes instruments rated AA and above, such as non-convertible debentures, commercial papers, and other fixed-income instruments issued by banks and corporations.
ICICI Pru Corp Bond Fund
ICICI Pru Corp Bond Fund holds a variety of corporate debt instruments with the goal of generating stable interest receipts, while staying aware of changing market situations. The fund’s management pays attention to metrics like coverage ratios and leverage levels to ensure the bonds it selects come from issuers with acceptable creditworthiness.
Nippon India Corp Bond Fund
Nippon India Corp Bond Fund combines corporate bonds that align with its preference for dependable issuers, aiming to deliver regular income along with a measure of capital protection. The fund managers study the outlook for interest rates and overall market conditions, allowing them to adjust the average maturity of the portfolio as needed.
HDFC Corp Bond Fund
HDFC Corp Bond Fund focuses on building a portfolio of corporate bonds that are backed by firms with credible repayment ability. The research process involves evaluating the debt issuers’ operational track records and future prospects, ensuring that the quality of holdings remains consistent. By diversifying across different maturities, the fund attempts to maintain a balance between earning interest and mitigating rate-related risks.
Kotak Corporate Bond Fund
Kotak Corporate Bond Fund aims to preserve the principal invested while looking for moderate gains through corporate securities. The fund monitors shifts in market dynamics, such as movements in policy rates, to time its bond purchases. Each potential addition to the portfolio is examined for quality, with an emphasis on the issuer’s financial health and track record. By focusing on bonds that meet set criteria, the fund tries to keep defaults at a minimum.
PGIM India Corp Bond Fund
PGIM India Corp Bond Fund maintains a portfolio of corporate bonds chosen from issuers with sufficient cash flow and stable operations. The fund regularly reviews its holdings and adjusts the mix of maturities to keep pace with economic developments. This flexibility allows it to navigate periods of interest rate movements with relative ease, while still aiming for a reliable income stream. By placing importance on credit evaluation, the fund seeks to limit potential risks tied to defaults.
Bandhan Corp Bond Fund
Bandhan Corp Bond Fund invests in corporate debt from a range of issuers that meet its stated credit parameters. The fund applies a structured process, examining the strength of a company’s balance sheet and its track record in meeting financial commitments. Interest rate forecasts also guide decisions on how long each bond is held, giving the fund an element of adaptability in shifting markets.
UTI Corporate Bond Fund
UTI Corporate Bond Fund selects corporate bonds that show credit stability, aiming to secure a steady stream of interest for its investors. The fund keeps track of multiple variables, including the direction of interest rates and sector-level trends, to refine its mix of securities. It also spreads investments across issuers in different fields, which helps reduce the effect of any one sector’s downturn.
SBI Corp Bond Fund
SBI Corp Bond Fund structures its holdings around corporate debt from issuers with sound financials, making periodic adjustments to account for evolving interest rate conditions. The fund’s approach involves reviewing each potential bond issuer’s operating margins, debt-servicing capacity, and past payment records. This careful vetting is designed to keep credit defaults at a manageable level.
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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 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.
