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What is a Corporate Bond Mutual Fund?

Corporate bond funds are debt funds that lend at least 80% of their money to companies with the best credit ratings possible. This rating is only given to financially sound companies with a high likelihood of repaying lenders on time.

Benefits of Corporate Bond Funds

  • Ideal for the money you won't need for another 2-3 years.
  • Funds in this category typically outperform bank fixed deposits of comparable duration.
  • Holding them for three or more years will result in tax-efficient returns due to indexation benefits

Why choose RKFS for Mutual Funds

  • 0% commission (buy and sell for free)
  • Paperless registration.
  • Invest in demat form
  • Invest in physical form
  • Same demat account used for other investments.
  • Apply for SGB from the same demat account.

Who should invest in corporate bonds?

Corporate bond mutual funds are an excellent option for investors seeking a fixed but higher income from a secure investment. The corporate bond fund online are a low-risk investment vehicle compared to debt funds because they provide capital protection. These bonds, however, are only partially secure. Corporate bond mutual funds India that invest in high-quality debt instruments can better serve your financial goals. When interest rates fluctuate beyond expectations, long-term debt funds often become riskier. As a result, to combat volatility, corporate bond funds invest in scrips. They typically choose an investment horizon of one to four years. This can be a bonus if you stay invested for up to three years. It may also be more tax-efficient if you are in the highest tax bracket.

Who should invest in corporate bonds

How do company bond funds work?

Companies can raise capital through debt or equity to fund ongoing operations or future growth. Many businesses prefer debt financing because issuing bonds does not dilute the shareholding pattern. As a result, many private and public corporations issue corporate bonds.

A company borrows money from investors when it issues bonds. The company promises to repay the principal amount under the terms of the corporate bond fund online India after a specified maturity period. Furthermore, the business pays interest or coupons on the initial investment.

Corporate bond funds' underlying portfolios are made up of these debt instruments. Due to increased demand, the prices of underlying bonds in a portfolio can rise. This generates additional returns in addition to the bond's fixed interest. The debt fund's NAV (Net Asset Value) rises, and investors profit.

Credit rating agencies assign credit ratings to corporate bonds based on their quality and the company's creditworthiness. Lower-rated bonds typically have higher yields but higher credit risks. Corporate debt funds primarily invest in bonds with the highest ratings and the lowest risk.

How do company bond funds work

Consider these points before investing in Corporate Bond Funds.

Corporate bond mutual funds invest in medium to long-term corporate debentures and bonds. Consider it as a long-term investment vehicle. Some market knowledge is required. Understanding potential risks and market conditions will be easier if you are a seasoned debt fund investor. Remember that a large number of defaults in a fund's portfolio can cause a significant drag on returns. If you decide to invest in them, don't let previous-year returns sway your decision.
In the case of corporate bond funds, it is best to stick to large AMC offerings, preferably the top five funds. Otherwise, new investors should stick to high-rated short-term debt funds with lower credit risk.

Where do Corporate Bond Mutual Funds invest their money?

Corporate Bond Funds are required by law to lend at least 80% of their assets to companies with the highest credit ratings. There are no lending duration restrictions, but most funds typically lend for two to three years.

Is it possible to lose money on a corporate bond?

Corporate bond mutual funds India are frequently marketed as less risky than stocks, and for the most part, they are, but you can still lose money if you own bonds. Bond prices fall when interest rates rise, the issuer suffers a negative credit event, or market liquidity evaporates.

How long can you keep corporate bonds?

Maturities can be short-term (less than three years), medium-term (four to ten years), or long-term (more than ten years) (more than 10 years). Longer-term bonds typically have higher interest rates but may also carry additional risks. Bonds, as well as the companies that issue them, are classified based on their credit quality.

Is it possible to lose money on a corporate bond

What happens to corporate bonds once they reach maturity?

The firm will repay the principal after the maturity period specified in the agreement. Meanwhile, you will receive interest (fixed income), also known as a coupon.

Is a corporate bond better than a government bond?

Another advantage of investing in Corporate bond mutual funds over bank fixed deposits is that there is no TDS on interest income in corporate bond funds. In contrast, interest income in bank fixed deposits is subject to TDS at 10%.


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