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List of Corporate Bond Mutual Funds in 2024

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Fund name
AUM
1Y CAGR
3Y CAGR
Till Date CAGR
aditya-birla-sun-life-logo
Aditya Birla Sun Life Corporate Bond Fund Direct (G)

₹ 23,336 Cr

9.1%

6.7%

8.2%

hdfc-logo
HDFC Corporate Bond Fund Direct (G)

₹ 32,072 Cr

9.1%

6.5%

8.1%

kotak-mahindra-logo
Kotak Corporate Bond Fund Direct (G)

₹ 14,332 Cr

9%

6.5%

8%

union-logo
Union Corporate Bond Fund Direct (G)

₹ 259 Cr

8.7%

5.8%

6.2%

dsp-logo
DSP Corporate Bond Fund Direct (G)

₹ 2,533 Cr

8.3%

5.6%

7.3%

mirae-asset-global-logo
Mirae Asset Corporate Bond Fund Direct (G)

₹ 42 Cr

8.7%

6%

5.9%

hsbc-global-logo
HSBC Corporate Bond Fund Direct (G)

₹ 6,116 Cr

9%

5.8%

7.7%

icici-prudential-logo
ICICI Prudential Corporate Bond Fund Direct (G)

₹ 27,164 Cr

8.5%

6.8%

8.2%

baroda-bnp-paribas-logo
Baroda BNP Paribas Corporate Bond Fund Direct (G)

₹ 196 Cr

9.1%

5.8%

6.9%

reliance-nippon-life-logo
Nippon India Corporate Bond Fund Direct (G)

₹ 5,945 Cr

9.2%

7%

8%

dhfl-pramerica-logo
PGIM India Corporate Bond Fund Direct (G)

₹ 95 Cr

8.7%

6.4%

7.6%

Invesco_Fav_icon-logo
Invesco India Corporate Bond Fund Direct (G)

₹ 5,720 Cr

8.9%

6.2%

7.4%

franklin-templeton-logo
Franklin India Corporate Debt Fund Direct (G)

₹ 757 Cr

8.4%

6.3%

8.4%

sundaram-logo
Sundaram Corporate Bond Fund Direct (G)

₹ 734 Cr

8.6%

6.1%

7.6%

canara-robeco-logo
Canara Robeco Corporate Bond Fund Direct (G)

₹ 136 Cr

8.5%

6.1%

7.7%

bandhan-bank-logo
Bandhan Corporate Bond Fund Direct (G)

₹ 14,098 Cr

8.1%

5.9%

7.4%

uti-logo
UTI Corporate Bond Fund Direct (G)

₹ 4,699 Cr

8.6%

6.3%

7.6%

axis-logo
Axis Corporate Bond Fund Direct (G)

₹ 6,104 Cr

9%

6.8%

7.5%

sbi-logo
SBI Corporate Bond Fund Direct (G)

₹ 20,915 Cr

8.7%

6.3%

7.4%

tata-logo
Tata Corporate Bond Fund Direct (G)

₹ 2,762 Cr

9.1%

-

6.3%

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Top 10 Corporate Bond Mutual Funds to invest in 2024

Below are the corporate bond mutual funds in india:

1. Aditya Birla Sun Life Corporate Bond Fund Direct (G)

Aditya Birla Sun Life Corporate Bond Fund Direct (G) is a Debt fund that has delivered a 1 Year return of 9.1%, a 3 Years return of 6.7% and a 5 Years return of 7.3%. The fund has an expense ratio of 0.3% and an AUM of ₹23337 crores as of 2024-12-09.The minimum SIP investment is ₹1000 and the minimum lump sum investment is ₹5000. The fund allocates 097.31% to debt and 2.69% to other assets.

2. HDFC Corporate Bond Fund Direct (G)

HDFC Corporate Bond Fund Direct (G) is a Debt fund that has delivered a 1 Year return of 9.1%, a 3 Years return of 6.5% and a 5 Years return of 7.2%. The fund has an expense ratio of 0.4% and an AUM of ₹32072 crores as of 2024-12-09. It was Launched on 2013-01-01. The minimum SIP investment is ₹1000 and the minimum lump sum investment is ₹5000. The fund allocates 096.98% to debt and 3.03% to other assets.

3. Kotak Corporate Bond Fund Direct (G)

Kotak Corporate Bond Fund Direct (G) is a Debt fund that has delivered a 1 Year return of 9.0%, a 3 Years return of 6.5% and a 5 Years return of 6.8%. The fund has an expense ratio of 0.3% and an AUM of ₹14333 crores as of 2024-12-09.The minimum SIP investment is ₹1000 and the minimum lump sum investment is ₹5000. The fund allocates 096.96% to debt and 3.04% to other assets.

4. Union Corporate Bond Fund Direct (G)

Union Corporate Bond Fund Direct (G) is a Debt fund that has delivered a 1 Year return of 8.7%, a 3 Years return of 5.8% and a 5 Years return of 6.4%. The fund has an expense ratio of 0.4% and an AUM of ₹260 crores as of 2024-12-09. It was Launched on 2018-05-25. The minimum SIP investment is ₹1000 and the minimum lump sum investment is ₹5000. The fund allocates 094.76% to debt and 5.24% to other assets.

5. DSP Corporate Bond Fund Direct (G)

DSP Corporate Bond Fund Direct (G) is a Debt fund that has delivered a 1 Year return of 8.3%, a 3 Years return of 5.6% and a 5 Years return of 6.0%. The fund has an expense ratio of 0.3% and an AUM of ₹2533 crores as of 2024-12-09. It was Launched on 2018-09-10. The minimum SIP investment is ₹1000 and the minimum lump sum investment is ₹5000. The fund allocates 098.59% to debt and 1.41% to other assets.

6. Mirae Asset Corporate Bond Fund Direct (G)

Mirae Asset Corporate Bond Fund Direct (G) is a Debt fund that has delivered a 1 Year return of 8.7% and a 3 Years return of 6.0%. The fund has an expense ratio of 0.2% and an AUM of ₹43 crores as of 2024-12-09. It was Launched on 2021-03-17. The minimum SIP investment is ₹1000 and the minimum lump sum investment is ₹5000. The fund allocates 096.14% to debt and 3.86% to other assets.

7. HSBC Corporate Bond Fund Direct (G)

HSBC Corporate Bond Fund Direct (G) is a Debt fund that has delivered a 1 Year return of 9.0%, a 3 Years return of 5.8% and a 5 Years return of 7.0%. The fund has an expense ratio of 0.3% and an AUM of ₹6117 crores as of 2024-12-09. It was Launched on 2013-01-01. The minimum SIP investment is ₹1000 and the minimum lump sum investment is ₹5000. The fund allocates 099.80% to debt and 0.20% to other assets.

8. ICICI Prudential Corporate Bond Fund Direct (G)

ICICI Prudential Corporate Bond Fund Direct (G) is a Debt fund that has delivered a 1 Year return of 8.5%, a 3 Years return of 6.8% and a 5 Years return of 7.2%. The fund has an expense ratio of 0.3% and an AUM of ₹27164 crores as of 2024-12-09.The minimum SIP investment is ₹1000 and the minimum lump sum investment is ₹5000. The fund allocates 096.15% to debt and 3.85% to other assets.

9. Baroda BNP Paribas Corporate Bond Fund Direct (G)

Baroda BNP Paribas Corporate Bond Fund Direct (G) is a Debt fund that has delivered a 1 Year return of 9.1%, a 3 Years return of 5.8% and a 5 Years return of 6.2%. The fund has an expense ratio of 0.2% and an AUM of ₹196 crores as of 2024-12-09.The minimum SIP investment is ₹1000 and the minimum lump sum investment is ₹5000. The fund allocates 096.41% to debt and 3.59% to other assets.

10. Nippon India Corporate Bond Fund Direct (G)

Nippon India Corporate Bond Fund Direct (G) is a Debt fund that has delivered a 1 Year return of 9.2%, a 3 Years return of 7.0% and a 5 Years return of 7.3%. The fund has an expense ratio of 0.3% and an AUM of ₹5946 crores as of 2024-12-09.The minimum SIP investment is ₹1000 and the minimum lump sum investment is ₹5000. The fund allocates 097.30% to debt and 2.70% to other assets.

Corporate bond funds are open ended debt funds that invest at least 80% of their assets in the highest rated corporate bonds. Corporate bond funds use credit opportunities of the corporate debt papers to earn returns. These funds are subject to interest rate risk due to their long durations. Hence making them exposed to market volatility. The underlying securities of corporate bond funds can be both high rated and low rated securities. Therefore, the credit quality for these funds can be low, and they can have significant credit risk.

Top 5 Corporate Bond Mutual Funds to Invest 2024

Direct Plan

Fund Name3 Year Return5 Year Return
Aditya Birla Sun Life Corporate Bond Fund Direct (G)6.6%7.2%
HDFC Corporate Bond Fund Direct Plan Growth6.4%7.1%
Kotak Corporate Bond Fund Direct (G)6.4%6.7%
DSP Corporate Bond Fund Direct (G)5.5%6%
Union Corporate Bond Fund Direct (G)5.7%6.3%

Regular Plan

Fund Name3 Year Return5 Year Return
SBI Corporate Bond Fund Regular (G)5.7%6.1%
HDFC Corporate Bond fund Regular (G)8.7%6.2%
Aditya Birla Sun Life Corporate Bond Fund Regular (G)6.4%7.1%
ICICI Prudential Corporate Bond Fund Regular (G)6.5%6.9%
Kotak Corporate Bond Standard Plan Regular (G)6%6.4%

What are Corporate Bond Funds?

Corporate bond schemes are a type of debt securityies. These are the types of bonds that companies’ issue. Corporate bonds are also known as Non-Convertible Debentures (NCDs). Firms or companies raise capital for their operations, growth opportunities and future expansion. They either raise capital through debt or equity. A debt issue will not dilute any shareholding pattern and hence is most preferred by companies. Both public and private companies issue corporate bonds.

Bank loans are not always cheap and can become an expensive affair. Therefore, companies issue debentures or bonds to raise funds which is an economical alternative. Also, sometimes the company pledges its physical assets as collateral.

When one buys corporate bond security, it means that the company is borrowing money from them. Therefore, the company will repay the principal upon maturity. Also, the company pays interest on the borrowing; this is known as the coupon. Mostly, the coupon payments are made twice in a year.

Corporate bond fund category is one of the largest categories within the debt segment (9% of total debt fund’s assets). Corporate bonds are mandated to invest at least 80% of their total assets in the highest rated securities.

Furthermore, corporate bond funds use credit opportunities of the corporate debt papers to earn returns. These funds have longer maturity periods exposing them to interest rate movements and market volatility.

Also, corporate bond funds have a significant credit risk. Companies can default their payments, resulting in a loss for an investor. Often the potential incremental return may not justify the higher credit risk and higher interest rate risk.

The taxation of corporate bond funds is similar to other debt funds. Short term capital gains (investments redeemed within three years) are taxable as per the individual’s income tax slab rate. At the same time, long term capital gains (investments redeemed after three years) are taxable at 20% with indexation benefit.

However, the taxation of debt mutual funds has been changed in the Finance Bill 2023. From April 1st 2023, capital gains from debt mutual funds will be taxable as per the investor’s IT slab rate, irrespective of the holding period. Thus, the LTCG benefit for debt mutual funds is no longer available.

Types of Corporate Bond Funds

  • Type one: Funds that invest only in debt papers with high ratings. For example, Banks and Public Sector Units (PSU).
  • Type two: Funds that invest in companies with slightly lower ratings. Debt papers with ‘AA-’ and below ratings.

For example, there are two bonds with different maturities. Bond X is a one-year residual maturity bond with a CRISIL ‘A’ rating and 0.60% chance of default. Bond Y is a three-year residual maturity bond with a CRISIL ‘A’ rating and 5.00% chance of default. Corporate bond funds’ portfolio manager invests the majority of the assets in the highest rated securities. However, there is a significant default risk with the other low rated securities. Therefore, this results in lower portfolio returns.

Features of Corporate Bond Mutual Funds

  • Returns: Returns of these depend on the portfolio of the fund. If the fund’s portfolio invests in high rated bonds and securities, the returns can be lower as the risk in them is lower. However, if the corporate debt fund invests in low rated bonds and securities, the returns can be higher, but the risk tends to be higher too.
  • Risk: These funds invest in corporate debt papers. They tend to have higher maturity and hence are subject to interest rate risks. Furthermore, some debt papers that this mutual fund scheme invests in can be of poor quality, exposing them to credit risk as well. Learn more on mutual fund risks.
  • Volatility: They are affected by interest rate movements. The volatility will be high when their portfolio has long duration securities and interest rates go up. Investors usually check modified duration apart from returns of the mutual fund scheme before investing in debt funds. The longer the modified duration of a corporate bond fund, the more will be the effect of interest rate changes on it and higher will be the volatility.
  • Portfolio of a corporate bond: A corporate bond portfolio will have to invest at least 80% of its assets in corporate debt papers like bonds, debentures, commercial papers, and structured obligations. However, a portfolio manager can invest 90% of its assets in corporate debt papers. At the same time, the rest can be allocated to safer investments like government securities to maintain the risk in the portfolio.
  • Bond prices: The bond prices are affected by movements in interest rates. Bond prices will fall, if the interest rates rise and vice versa. The bond prices also change with the maturity period. Bonds are always issued below par value, and the bond issuer pays back the par value upon maturity. Investors should check how the prices vary from the par value to know the market movements.
  • Coupon or interest payment: The company issuing the bond pays interest in the form of coupon payment (usually twice a year). It is one way that the corporate bond funds earn returns. The coupon rate is a percentage of the par value.
  • Taxation: Corporate bond funds are taxed like debt mutual funds. The investments held for less than three years will be taxable at the individual’s income tax slab rates. At the same time, investments with a tenure of more than three years are taxable at 20% with indexation benefits. However, from April 1st 2023, capitals gains from debt funds will be taxable as per the investor’s IT slab rate, irrespective of the investment holding period.
  • Yield to Maturity (YTM): The annual return on the bond is the yield or return of the bond. The total return of the bond until maturity is called yield to maturity. Higher the yield to maturity (YTM), higher the returns.

Benefits and limitations of investing in Corporate Bond Funds

Benefits

  • Returns: Corporate bond funds may generate higher returns. The investor is undertaking significant risk when compared to other government bonds. Therefore, the higher the risk, the higher are the returns. Also, the companies make regular coupon payments to their investors.
  • Tax efficiency: Corporate bonds are suitable for long durations, i.e. for more than three years. Therefore, investing for three years will be an advantage to an investor while filing taxes. These funds are taxable at 20% with indexation benefit. Hence, investors falling under the highest tax bracket may benefit from this the most. However, from April 1st 2023, capital gains will be taxed as per the investor’s Income tax slab rate.

Limitations

  • Default risk: The default risk concerning the company defaulting the payments is quite high. Though the ratings are high, there is no guarantee that a company wouldn’t default its payments. Therefore, corporate bond funds have higher default risk.
  • Interest rate risk: These are long term investment options. The interest rates are subject to change. Therefore, changes in interest rates will have an impact on coupon payments. As a result, there will be an impact on the returns.
  • Volatility: It can be subject to market volatility. In other words, these long duration investments are subject to fluctuations with the changing interest rates. Bond prices and coupon payments can be affected by dynamic interest rates.

Things to remember before investing

  • Long term investments: Corporate bond funds invest in corporate bonds and debentures with a medium term to long term tenure. Therefore, they are suitable for long term investors. However, theythere are subject to interest rate risk and default risk.
  • Knowledge: Investors require some knowledge around corporate bonds while investing in these funds. It might be quite difficult for a common investor to understand the bond market and the potential risks
  • Returns: Even though the past performance of a corporate debt fund may be good, there is no guarantee for future returns. Moreover, there have been many companies defaulting in the past, and these have an impact on the portfolio returns.

Conclusion

This category is one of the largest categories within the Debt Segment (9% of total debt fund assets). Though the funds have predictable returns, they do not guarantee returns. These funds tend to have higher duration exposing them to interest rate movements and market volatility. Since the funds tend to have higher duration, their returns are highly dependent on interest rates. Also, the credit quality of funds in this category is relatively poor.

“Scripbox does not recommend funds in this category. We believe that the potential incremental return is not justified by the higher credit risk and higher interest rate risk.”

Frequently Asked Questions

Who should invest in a corporate bond fund?

Corporate bond funds are suitable for investors seeking fixed and regular income from their investments. The returns from these funds are predictable. However, there is no guarantee of the same. Corporate bond funds do not guarantee returns. Though they are low-risk investments, the returns from them do not justify the risk. The corporate bond funds that do not invest in high rated securities are exposed to credit risk. Additionally, these funds are subject to interest rate fluctuations as they have long modified durations.
Investors seeking low risk investments for low returns can look at investing in corporate bond funds. However, these funds do not guarantee returns. If an investor is willing to invest in these funds, the ideal investment horizon for these funds is 3-5 years.

Are corporate bond funds a good investment?

Corporate bond funds invest in corporate bonds or debt securities issued by different organisations. Companies raise money either through equity or debentures. Corporate bond funds earn a return through interest income and capital gains. Similar to equity securities, debt securities also trade in the debt market. When a mutual fund buys a bond, and the price of the bond goes up, the fund gains through capital appreciation.
Corporate bond funds usually invest in AAA and AA-rated bonds. And the returns from these funds are quite predictable. However, they are exposed to interest rate risk and default risk. If the fund’s portfolio is majorly invested in AAA-rated securities, then the default risk is minimum. Hence investors who expect stable returns at low risk can invest in corporate bond funds.