Since the RBI held the repo and reverse repo rates steady for the seventh time in a row at its bi-monthly monetary policy meet, fixed deposit customers would have to queue up for the Reserve Bank of India (RBI) to raise main policy rates. Unfortunately, the second wave of Covid-19, which included a nationwide lockdown, struck the economy off course once again, slowing the interest rate rise even longer. Now, these factors undoubtedly will make fixed deposit investors to think beyond their consideration. Risk-averse investors in India have long preferred bank fixed deposits (FDs) as a debt investment alternative. But that is no longer the case. The attractiveness of FDs is dwindling as interest rates have fallen, notably in the last year. For investors searching for low-risk investment choices, corporate bonds might be a good alternative to bank FDs. So let's discuss the best corporate bond funds to invest in and reasons to invest in them.
What are corporate bond funds?
Corporate bond funds, also known as non-convertible debentures, are debt funds that invest at least 80% of their capital in corporations with the best credit ratings. The credit ratings offered by rating organisations such as CRISIL or Value Research can be used to assess the safety of corporate bonds. AAA-rated companies are the safest and have the lowest credit risk compared to AA-rated companies. Because Corporate Bond Funds invest primarily in high-rated instruments, their credit risk is lower than that of other debt funds. Corporate Bond Funds have consistently outperformed other debt categories even amid the current financial market turmoil. In the previous year, corporate bond funds have provided an average return of nearly 7%. Their three and five-year average returns are over 8% and 9%, respectively. Which is unquestionably better than the interest rates on FDs offered by major banks like SBI, HDFC. Axis and ICICI.
4 Best Corporate Bond Funds In Terms of Returns
Because Corporate Bond Funds are well known for medium duration investment tools, you need to invest for at least two to three years to earn greater returns than bank FDs. The best four corporate bond funds to invest in 2021 are listed below.
|Bond Funds||1 Year Returns||3 Year Returns||Value Research Rating|
|Aditya Birla Sun Life Corporate Bond Fund||7.99%||9.45%||5 star|
|ICICI Prudential Corporate Bond Fund||7.47%||9.15%||5 star|
|Kotak Corporate Bond Fund||6.90%||8.43%||4 star|
|Axis Corporate Debt Fund||9.09%||8.92%||3 star|
Aditya Birla Sun Life Corporate Bond Fund
The fund presently has Rs 23,971 crore in asset under management (AUM) and a NAV of Rs 87.13 as of June 4, 2021. National Bank For Agriculture & Rural Development, Rural Electrification Corp. Ltd., Housing Development Finance Corp. Ltd., HDB Financial Services Ltd., Madhya Pradesh State are among the fund's top holdings. The Aditya Birla Sun Life Corporate Bond Fund's direct plan has an expense ratio of 0.46 per cent. The Aditya Birla Sun Life Corporate Bond Fund has a Value Research rating of 5 stars, indicating that it has the potential to outperform the returns of bank FDs.
ICICI Prudential Corporate Bond Fund
ICICI Prudential Corporate Bond Fund Direct Plan Growth is a debt mutual fund scheme of ICICI Prudential Mutual Fund. The fund presently has Rs 19,706 crore in asset under management (AUM) and a NAV of Rs 23.77 as of June 4, 2021. GOI, National Bank For Agriculture & Rural Development, Housing Development Finance Corp. Ltd., Rural Electrification Corp. Ltd., and LIC Housing Finance Ltd. are among the fund's top holdings. The fund has an expense ratio of 0.27%. Value Research has given this fund a five-star rating, indicating that it can prevent losses and provide good returns during market downturns.
Kotak Corporate Bond Fund
Kotak Corporate Bond Fund Standard Growth is Kotak Mahindra Mutual Fund's debt mutual fund product. The fund presently has Rs 9,310 crore in assets under management (AUM) and a NAV of Rs 2934.42 as of June 4, 2021. State Bank of India, Rural Electrification Corp. Ltd., Reserve Bank of India, Tata Capital Financial Services Ltd., and Tamilnadu State are among the fund's top holdings. The fund has a 0.66 per cent cost ratio and a 4-star rating from Value Research. Even if the fund's rating is satisfactory, the fund's three-year, five-year, and ten-year returns are all higher than the category average returns.
Axis Corporate Debt Fund
Axis Corporate Debt Fund Direct Growth is an Axis Mutual Fund's debt scheme. As of June 4, 2021, the fund has Rs 4,089 crore in assets under management (AUM) and a NAV of Rs 13.75. National Bank For Agriculture & Rural Development, State Bank of India, Motherson Sumi Systems Ltd., India Infradebt Ltd., and Tata Capital Ltd. are among the fund's top holdings. Value Research has given the fund a three-star rating and the expense ratio of this fund is 0.24%. This suggests that the fund has delivered respectable returns, but the stability with which it has done so is questionable. You can invest in this fund if you don't mind being dissatisfied amid periods of poor returns.
Should you invest?
Individuals seeking a low-risk, short-term investment option can simply pick corporate bond funds with a shorter maturity period. Corporate debt funds have a lower risk profile than equity funds, and they offer high liquidity at the time of emergency. Corporate bond funds provide much better returns than other debt securities. Corporate debt instruments may anticipate average yields of 8-10 per cent, whilst bank FDs will currently only have an average return of 5 to 5.5 per cent. Long-term capital gains tax of 20% with indexation is available if you invest in Corporate Bond Funds for more than three years. Because FD returns are taxed according to income tax slabs, corporate bonds are a good adjunct to FDs for investors in the higher tax bracket. As an outcome, you can employ Corporate Bond Funds in your debt portfolio because these funds may deliver consistent returns with little risk exposure and substantial post-tax returns.
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