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- Can take a relatively higher risk for greater returns? Corporate bond funds can be the one you should look to invest in
- Read this post to know the top-performing corporate bond funds
Corporate bond funds are a category of debt funds that invest in bonds issued by corporates or companies. Corporates need capital to run their business and fuel their growth plans and resort to debt markets to raise such capital. These funds have a high credit quality since 80% of the portfolio must be invested in companies with a rating of AA+ and they can invest up to 20% in securities with a rating below AA+. This makes these funds less risky when it comes to credit defaults, especially as compared to credit risk funds.
Though these funds carry a lower credit risk, they might have a higher interest rate risk by having a longer duration. When investing in a corporate bond fund, one should analyze the portfolio for both credit and interest rate risk. One should invest only in those corporate bond funds where the portfolio quality is good and the duration is well managed. These funds have been one of the best performing debt funds with an average category return of 10.34% in the last one year. Let us look at the best corporate bond funds for 2020.
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Best Performing Corporate Bond Funds
Aditya Birla Sunlife Corporate Bond Fund
This fund is offered by Aditya Birla mutual fund and was launched on 3rd March 1997. It has been a consistent performer with returns of 9.40% annualized since launch. The fund is benchmarked to the Nifty Corporate Bond Index and manages an AUM of INR 18,509 crores. The current portfolio is invested more than 90% in AA+ securities. This fund is rated four stars by Value Research.
DSP Corporate Bond Fund
This fund is offered by DSP Mutual Fund and was launched on 10th Sep 2018. Being a relatively newer fund, it has done exceedingly well with returns of 11.53% since inception. The fund is benchmarked to the CRISIL Composite Bond Index and manages an AUM of INR 990 crores. The AUM is comparatively lesser being a newer fund. The fund has a top quality portfolio with more than 95% being invested only in AAA securities, which are the highest rated debt securities. The fund is rated five stars by Value Research.
HDFC Corporate Bond Fund
This fund is offered by HDFC Mutual Fund, which is one of the largest mutual funds in the country. It was launched on 29th June 2010 and has returned an impressive 8.99% annualized since launch. This fund is benchmarked to Nifty Corporate Bond Index and manages assets worth INR 15,986 crores. The current portfolio has more than 90% invested in AAA securities, which highlight the strength of this fund. It is rated four stars by Value Research.
Kotak Corporate Bond Fund
This fund is offered by Kotak Mutual Fund and was launched on 21st Sep 2007. It has delivered a return of 8.28% since launch and manages an AUM of INR 4,359 crores. The fund is benchmarked to the CRISIL Composite Bond Index. The current portfolio comprises 90%+ AAA securities and is rated five stars by Value Research.
UTI Corporate Bond Fund
This fund is offered by the UTI Mutual Fund which is the oldest mutual fund in the country. The fund was launched on 8th August 2018 and has delivered 10.68% annualized returns since launch. It is benchmarked to CRISIL Composite Index Fund and manages an AUM of INR 1,500 crores. The current portfolio comprises more than 90% in AAA-rated securities and is rated four stars by Value Research.
Let us look at the returns delivered by these funds (in %)
|Name of the fund||Last 6 months||Last 1 year||Last 3 years|
*These funds have not completed three years.
Corporate Bond funds are a good option for those investors who can take higher risk for higher returns. One gets to invest in a high-quality debt portfolio through corporate bond funds and are less risky than credit funds. However, if you do not want to take a risk with your debt investments, it is better to stick to overnight, liquid and ultra short term funds. Also, one should have a time horizon of 2-3 years when investing in corporate bond funds.