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.
Get Your Free Credit Report with Monthly Updates Check Now
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
A Good Credit Score can help in getting Loan Approvals Easily Check Now
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 am 75 years now and have some Bank Deposits maturing shortly. I have been depending on the interest from these deposits for my day to day expenses. Since Bank deposit rates have moved down sharply, my income will get reduced by 25% plus if I renew these deposits. Where should I invest now to get a regular quarterly income of around 8.5% plus to sustain my expenses?
Hi Bhaskar,
A couple of small finance banks are offering interest rates of 8.5-9.00% p.a. on some of their FD tenures. Given your age and cash flow profiles, income certainty and capital protection would be your primary concern. Hence, we suggest you open FDs in those banks with a quarterly payout option.
Best FD Interest Rates in 2020
As small finance banks are scheduled banks, deposits of up to Rs 5 lakh maintained by each customer of these banks are insured under the depositor insurance program of DICGC, an RBI subsidiary. Hence, FDs of up to Rs 5 lakh opened with small finance banks are as safe as those opened with Public Sector and large private sector banks. Try to spread your FDs across multiple small finance banks in such a way that the cumulative deposits in each of these small finance banks do not exceed Rs 5 lakh.