What are Corporate Bond Funds
Corporate bond funds are open-ended debt mutual funds, which invest primarily in highly rated corporate bonds. As per SEBI guidelines, corporate bond funds have to invest at least 80% of their total assets in corporate bonds rated AA+ and above.
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 – Direct Plan | 10.29 | 8.50 | 7.26 | 7.83 |
| Axis Corporate Bond Fund – Direct Plan | 10.36 | 8.42 | 7.03 | — |
| ICICI Prudential Corporate Bond Fund – Direct Plan | 9.40 | 8.38 | 6.81 | 7.92 |
| HDFC Corporate Bond Fund – Direct Plan | 9.66 | 8.31 | 6.62 | 7.95 |
| Franklin India Corporate Debt Fund – Direct Plan | 10.96 | 8.23 | 6.85 | 7.99 |
| Aditya Birla Sun Life Corporate Bond Fund – Direct Plan | 9.57 | 8.21 | 6.71 | 7.98 |
| Baroda BNP Paribas Corporate Bond Fund – Direct Plan | 10.34 | 8.21 | 6.03 | 6.65 |
| HSBC Corporate Bond Fund – Direct Plan | 9.98 | 8.17 | 6.09 | 7.79 |
| Kotak Corporate Bond Fund – Standard Plan – Direct Plan | 9.99 | 8.17 | 6.65 | 7.78 |
| Tata Corporate Bond Fund – Direct Plan | 9.64 | 8.15 | — | — |
(Data as on July 8, 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 bonds and other debt securities rated below the highest credit ratings might adversely impact returns during credit events
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.