What are Corporate Bond Funds
Corporate bond funds are open ended debt mutual funds investing in highly rated corporate bonds. As per SEBI guidelines, corporate bond funds have to invest at least 80% of their total assets in AA+ and above rated corporate bonds.
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Why Invest in Corporate Bond Funds
- Lower credit risk due to exposure to highest-rated corporate bonds
- Top-rated corporate bonds offer higher yields than government bonds with same maturity profiles
- Have lower interest rate risk than long and medium term bond funds
- Usually generates higher returns than fixed deposits
Table of Best Corporate Bond Funds (Direct Plan)
| Fund Name | Returns (%) | |||
| 1 year | 3 year | 5 year | 10 year | |
| Nippon India Corporate Bond Fund | 10.46 | 8.00 | 7.48 | 7.48 |
| Axis Corporate Bond Fund | 10.43 | 7.90 | 7.65 | – |
| Tata Corporate Bond Fund | 10.38 | 7.53 | – | – |
| Aditya Birla Sun Life Corporate Bond Fund | 10.30 | 7.78 | 7.42 | 8.01 |
| Baroda BNP Paribas Corporate Bond Fund | 10.23 | 7.39 | 6.60 | 6.61 |
| Invesco India Corporate Bond Fund | 10.18 | 7.35 | 6.94 | 7.34 |
| SBI Corporate Bond Fund | 10.18 | 7.44 | 6.89 | – |
| Kotak Corporate Bond Fund – Standard Plan | 10.11 | 7.59 | 7.07 | 7.77 |
| HDFC Corporate Bond Fund | 10.08 | 7.74 | 7.33 | 7.97 |
| Mirae Asset Corporate Bond Fund | 10.07 | 7.25 | – | – |
| Category Average (Corporate Bond Funds) | 9.93 | 7.41 | 7.00 | 7.62 |
(Data as on April 25, 2025 : Source: Value Research)
Risks of Investing in Corporate Bond Funds
- Portfolios with longer maturities may increase the interest rate risk during rising interest rate regime
- Exposure of up to 20% in debt securities rated below the highest credit ratings might impact returns during credit events
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Taxation of Corporate Bond Funds held by Individual Investors
For investments made before April 1, 2023: LTCG tax @ 12.5% will apply on the capital gains. However, the LTCG component will not be eligible for claiming rebate under Section 87A of the Income Tax (IT) Act.
For investments made on April 1, 2023 & after: Capital gains realised would be taxed as per the tax slab of the investor but can be used for claiming rebate under Section 87A of the IT Act.
Who should invest in Corporate Bond Funds
- Investors seeking to benefit from highest rated corporate bonds with investment horizons of 1-4 years
- Those seeking higher returns with lower volatility
- Those seeking higher rate of returns than government bonds with lower interest rate risk
10 Comments
I want to invest 5 Lakhs for aperiod of 2 to 3 years. I am Sr. Citizen @ 70. Please suggest any good Tripple A rated or good liquid funds.
Hello Amit Mukherjee,
Some of the best liquid funds are- Franklin India Liquid Fund, Nippon India Liquid Fund, Aditya Birla Sun Life Liquid Fund.
These funds are not just investing in A-rated securities but have been giving consistently positive returns in the last 5 years.
Aaa corporate bond funds nav has gone up substantially in last one month,with govt bonds of 6 lac crore coming up for auction would push yields up and nav should go down.One should wait to invest or yields might not go up.
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I want to invest 15 lakhs in HDFC corporate bond fund for 1 year , please suggest what to do.
Hi Vinod, if you wish to do so go ahead. However, I would suggest that instead of parking all your cash into one fund you should seek to diversify your portfolio. You can also look at Liquid Funds. Short term debt funds and ultra short term debt funds. You can divide up your investment into these schemes for offsetting risk and increasing the chances of return.
1). Whether corporate bond funds have entry & exit loads?
2). How is the performance of SBI corporate bond fund?
Hi Gautam,
Any mutual fund scheme that you choose to invest in will charge a marginal entry load. Any corporate bond fund will have an exit load if you exit the scheme before a particular date as mentioned when you invested in the scheme. However, if you are in dire need of funds you can select on the redeem option online or on the app that you invested and see the amount that you would receive after the exit load. If the returns are still higher than the amount you invested you could go ahead and redeem it.