What are corporate bond funds?
Corporate bond funds are a type of debt fund that primarily invest in bonds issued by private companies with the AA+ and above credit rating . Imagine these bonds as loan agreements or IOUs, with companies borrowing money from investors (like you and I) and agreeing to repay the principal amount along with interest over a set period. By pooling our money with other investors, these funds offer access to a diversified portfolio of corporate bonds, spreading out the risk and optimising the return potential.
Types of corporate bond funds
Corporate bond funds typically allocate their investments across two categories:
Esteemed enterprises with high credit ratings, often encompassing top public sector companies and Navratnas.
Enterprises with a credit rating of AA+ and above.
Why cast your anchor with corporate bond funds?
Having understood the corporate bond funds meaning, let's see why one should actually invest in these funds.
Relatively steady income potential: Corporate bonds generate regular interest payments, providing a potentially reliable source of income for those nearing retirement or seeking to supplement their current earnings.
Impact of volatility:
While not risk-free, corporate bond funds tend to be less volatile than equity funds, making them suitable for investors who prioritise less volatility over high-octane growth.
Key features:
Understand the risks: While less volatile than equities, corporate bond funds are still exposed to some credit risk, the chance that the issuer might default on their debt.
Diversification: By investing in a range of corporate bonds, these funds provide investors with diversification benefits, reducing the impact from any individual issuer.
Regular inflow of funds: Investors in corporate bond funds tend to receive regular Income distribution cum capital withdrawal (IDCW), offering a steady income inflow of funds. This makes them suitable for those looking for a reliable source of cash flow.
Professional management: Fund managers employ their expertise to actively manage the portfolio, making dynamic decisions based on market conditions and credit quality assessments.
In conclusion:
Corporate bond funds are an invaluable option for investors seeking a blend of steady income (IDCW), moderate growth potential, and relative stability of capital. Remember, thorough research, careful consideration, and professional guidance are essential when venturing into the realm of corporate bond funds.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
This document should not be treated as endorsement of the views/opinions or as investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.