Top Corporate Bond Funds In Limelight

 

Corporate bond funds are in the gaze of investors as fundraising from the capital market is gaining more attraction. Bond funds are technically open-ended debt mutual funds that invest in highly rated corporate bonds.  The guidelines of SEBI mandate that corporate bond funds have to invest at least 80 per cent of their total assets in AA+ and above rated corporate bonds.

 

Benefits in Corporate Bond Funds

Among the advantages include -lower credit risk. This is due to exposure to the highest-rated corporate bonds.

 

·       Higher yields than government bonds with the same maturity.

·       Lower risk of falling interest rate than long and medium-term bond funds. 

 ·       Ensures higher returns than fixed deposits.

 ·       Have higher tax efficiency than fixed deposits

Top Corporate Bond Funds 

Some of the top corporate tax funds include the following.

• L&T Triple Ace Bond Fund 
• Axis Corporate Debt Fund   
• HDFC Corporate Bond Fund 
• ABSL Corporate Bond Fund 
• ICICI Prudential Corporate Bond Fund      
• IDFC Corporate Bond Fund 
• Sundaram Corporate Bond Fund 
• Kotak Corporate Bond Fund 
• Invesco India Corporate Bond Fund    
• Edelweiss Corporate Bond Fund  

 

Some attractions of HDFC corporate bond fund

The fund invests in highly-rated corporate bonds and has been a consistent performer. Corporate bond funds have become a popular debt investment category in recent years.  The category registered the highest net inflows of about Rs 72,550 crore in the last one year. 

 

HDFC Corporate Bond Fund has been one of the better and stable performers in this category. Investors with a 2-4-year time frame and looking for high credit-quality portfolios with moderate interest rate risks can consider investing in the scheme, per a report in Money Control.

 

The fund currently has an average maturity of 4.4 years and a yield-to-maturity of 5.4 per cent is deemed healthy given the uncertain and low-interest rates scenario and the scheme’s exposure to the highest-rated bonds.

 

Low credit risks

 

HDFC Corporate Bond Fund (HCBF) invests in highly-rated corporate bonds, as per the category’s mandate. Corporate bond funds invest at least 80 per cent of their assets in the highest-rated (AAA and AA+) debt instruments and hence carry low credit risks.

 

Like all corporate bond funds, HCBF has a restriction on the credit quality of its portfolio. 

“Since these funds aim to maintain a quality portfolio, they try to generate returns mainly through interest accruals,” per Anupam Joshi, Fund Manager-Fixed Income, HDFC AMC. 

HDFC Corporate Bond Fund (HCBF) has been performing well within almost 100 per cent of its assets in the highest-rated bonds over the past five years and allocation have held the fund in good stead. Over the past few years, a string of corporate bond downgrades and defaults rattled debt funds investors. However, corporate bond funds did well as they were restricted from holding bonds with lower credit ratings.

 

Avoids Stressed Trio

 

The risk control strategy of HCBF makes it zero exposure to stressed funds including DHFL, ADAG, IL&FS etc It also reduced risk levels by ensuring a non-concentrated exposure. The most it has invested in a single corporate group is 8.9 per cent. The regulator, Securities and Exchange Board of India (SEBI), allows investments of up to 20 per cent.

 

Consistent returns

HCBF has outperformed its peers across periods. Over the past three-year period, the fund has given 9.1 per cent returns, as against 7.6 per cent managed by the category.

 

In rolling returns, HCBF gives 8.2 per cent as opposed to its category average of 7.2 per cent. In 2020, corporate bond funds gave good returns as interest rates fell.

But high borrowings announced in this year’s Budget have led to a spike in yields ever since. An increase in fiscal deficit and massive government borrowing plans for the financial year 2021-22 have meant that interest rates may begin to rise eventually.

Short to medium duration debt funds better

Joshi believes that the bond yields are likely to trade with an upward bias, though the upside should be limited. He advises investors to focus on short to medium duration debt funds.

Arun Kumar, Head of Research, FundsIndia cautions that while credit risk is minimal for the category, interest rate risk (as reflected in the modified duration) needs to be evaluated before choosing a corporate bond fund.