Corporate bond funds: Features & Benefits

 Corporate bond funds: Features & Benefits

Mutual fund investments have gained momentum among Indian investors in the recent past. More and more people are shifting from traditional investment avenues to mutual funds for a wide number of reasons. First of all, these, are a pool of professionally managed funds that offer active risk management. Historically mutual funds have offered far better returns are compared to conservative schemes. And with falling interest rates, there’s no point of investing in bank FDs or similar schemes as you hardly earn any interest on the investment amount. On the other hand, mutual funds have historically offered far better capital appreciation as compared to conservative investment schemes. Mutual fund houses collect money from investors sharing a common investment objective and invest this pool of funds across Indian and foreign economies. Depending on the nature of the scheme and its investment objective a mutual fund may invest across various money market instruments like company stocks, corporate bonds, government securities, commercial papers, company fixed deposits, etc.

The performance of a mutual fund depends on the performance of its underlying assets and all the sectors and industries in which it invests. Market regulator SEBI (Securities and Exchange Board of India) has classified mutual funds to bring all similar schemes under one umbrella. Also, fund houses cannot offer more than one scheme in the same category for investors to avoid further confusion when making an investment decision.

What are corporate bond funds?

Mutual funds are categorized by SEBI has on the schemes’ unique attributes like asset allocation strategy, its underlying index, risk profile, investment strategy, etc. Some of the most common categories in mutual funds include equity, debt, hybrid, solution oriented, ETFs and gold. While equity schemes are known to be highly volatile in nature, debt schemes are considered by investors to provide cushion and diversification for their mutual fund portfolio.

Debt mutual funds are open ended schemes which aim at generating capital appreciation by investing in fixed income securities. Corporate bond funds are debt schemes which invest in company bonds for income generation. Whenever companies need funds for taking care of their recurring expenses like marketing and advertising, they sell out bonds. Companies prefer corporate bonds over bank loans as the credit risk associated with them is lower.

What are some of the features and benefits of corporate bond funds?

Those investors who seek capital appreciation over the short term may consider investing in corporate bond funds. That’s because apart from investing in bonds, corporate bond funds also invest in debt instruments and fixed income securities. Investors targeting short term financial goals may consider investing in corporate bond funds. Another great benefit of corporate bond funds is that investors can buy or sell their corporate bond fund units at any given times. Like most debt schemes, corporate bond funds are known to be highly liquid in nature. In case of a financial emergency, investors can easily liquidate their fund units which may not be the case in certain investment schemes like ELSS which comes with a three year lock-in period.

Investors who are new to mutual funds can consider starting a SIP in corporate bond funds. Systematic Investment Plan is an easy and convenient way to invest in corporate bond funds. If you are a KYC compliant individual, you can invest in corporate bond funds via SIP from the comfort of your home using a laptop or smartphone and a decent internet connection. Investors can also refer to an online SIP calculator to determine how much money you need to invest at regular intervals in order to get closer your targeted financial goal. Also, it is better to consult a financial advisor before investing.