When it comes to investing, corporate bond funds are a solid option for those looking to build a well-rounded portfolio. These funds, which are mostly made up of corporate debt, provide a different kind of investing opportunity by balancing returns and risk. With so many options on the market, choosing the best corporate bond funds necessitates a deep comprehension of the market, performance indicators, and corporate bond funds’ specifics.
Best Corporate Bond Funds Overview
| Best Corporate Bond Funds | 5-Year Annualized Returns |
| HSBC Corporate Bond Fund | 7.6% |
| Aditya Birla Sun Life Corporate Bond Fund | 7.4% |
| HDFC Corporate Bond Fund | 7.3% |
| ICICI Prudential Corporate Bond Fund | 7.3% |
| Axis Corporate Debt Fund | 7.3% |
| Sundaram Corporate Bond Fund | 7.2% |
| Kotak Corporate Bond Fund | 7.1% |
| Franklin India Corporate Debt Fund | 7.0% |
| Nippon India Corporate Bond Fund | 7.0% |
| PGIM India Corporate Bond Fund | 6.8% |
How Do Corporate Bond Funds Work?
Essentially, these funds are open-ended debt funds with an 80% corpus invested in highly rated businesses. Credit reporting agencies such as CRISIL, ICRA, CARE, and others provide these ratings.
A corporate bond fund’s portfolio of bonds is purchased by the fund’s investors pooling their individual contributions. The fund then distributes dividends to its investors using the interest income from the bonds. Compared to equity investments, corporate bond funds carry less risk because they allocate their investments to highly-rated debt securities. However, because of their duration, these funds are vulnerable to interest rate risks.
Factors to Consider While Choosing Best Corporate Bond Funds
- To determine the expected returns of a corporate bond fund, investors should review the fund’s historical performance. However, they must keep in mind that a strong showing in the past does not ensure a strong showing going forward.
- Corporate bonds, which usually have medium- to long-term maturity periods, are invested in by corporate bond funds. These funds are therefore a good choice for an investment with a medium-long time horizon.
- Prior to making an investment in this bond fund, it is also crucial to evaluate the fund manager’s historical performance. In light of the current state of the market, he should possess the knowledge and expertise to choose the appropriate instruments in order to balance risks and rewards.
- The risk profile of these funds varies based on the caliber of the bonds they invest in. Debt instruments with higher ratings have lower risks but offer returns that are not up to par. Bonds with a lower rating are riskier, but they also yield higher returns.
Who Should Invest in the Best Corporate Bond Funds?
- These funds may be of interest to investors who are risk-averse and seek consistent, predictable returns.
- To reap the rewards of investing in such funds, investors with a longer investment horizon than three years ought to give it some thought.
- For those who want a high level of protection against credit risk, these debt funds are also perfect.
Benefits of Investing in the Best Corporate Bond Funds
- Defend Yourself from Market Volatility: Compared to stocks, these funds may offer a less risky way to get exposure to corporations. Australian equities and corporate bonds are often inversely correlated, with corporate bond funds rising in tandem with rising share prices and vice versa. Thus, putting some of your money into corporate bonds can help make your portfolio more “defensive”—returns will be more consistent and predictable, especially when the market is volatile.
- Potential to Generate Higher Returns: In the medium run, they should provide investors with a higher excess yield than term deposits and government bonds. It is important to remember that the AMP Corporate Bond Fund is not the same as a bank term deposit; rather, it is a managed investment program. Furthermore, because of their solid business fundamentals, they are in a good position to benefit from the ongoing recovery of the global economy.
- Reduced Risk of Capital Loss: Active bond managers use a range of tools to reduce downside risk when interest rates are rising. The most significant of these is the manager’s capacity to alter the “duration” of a bond portfolio. Years are used to quantify how sensitive a bond’s capital value is to changes in interest rates over time.
Features and Benefits of Best Corporate Bond Funds
- Returns: The investments made by the fund manager have a direct impact on returns on corporate bond funds. Average annualized returns of 7% to 8% can be expected if the fund manager decides to be risk-averse and only makes investments in the highest-rated bonds. In order to maximize fund returns, highly skilled and experienced fund managers may occasionally decide to allocate their investments to lower credit-rating bonds (up to a minimum of 80% in high-rated bonds).
- Risks: Credit, market, and liquidity risks can affect corporate bond funds. Generally speaking, though, corporate bond funds have a lower risk profile because the majority of their assets are allocated to bonds with ratings of AA+ and higher. Because there is a very slim chance that bonds with the highest credit rating will default, this significantly lowers the risks.
- Liquidity: Investors have a strong demand for highly rated debt instruments, and just like equity shares, these debt securities can be traded easily on the debt market. Investors can now easily enter and exit corporate bond schemes in accordance with their needs thanks to this.
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