As known, the mutual fund invests not only in equities but also in debt. Of course, investors are free to choose asset class as per their goals and risk-appetite. Again, the debt part is divided into three other categories. Here, we’ll be giving information about corporate bond funds. Take a read:
CORPORATE BOND FUNDS
It is an open-ended debt scheme that invests at-least 80% of its total assets in high-rated corporate bonds. These funds can provide high-returns, thus, carrying a minimal amount of risk by investing in high-rated investments.
WHO SHOULD INVEST?
Corporate bonds are considered as a good choice who are looking for a fixed criterion but with high income from a safe avenue. It’s a low-risk vehicle, as compared to debt funds because of its capital protection. If you are thinking to opt for this bond, then putting money in high-quality debt instruments can serve you with better financial goals.
BENEFITS & FEATURES
- Price of the Bond: Every bond comes with a price and it’s not static. You can buy a similar bond at different prices, based on the time-period you choose.
- Components of Corporate Bonds: These bonds invest particularly in debt paper. Companies issue the debt papers, which include debentures, structured obligations, bonds, and commercial papers. Each of them carries a maturity date and a unique risk profile.
- Current Yield: The annual returns making from the bond is known as the current yield. Example: If the coupon bond rate is INR 1000 par value 20%, then, the firm is liable to pay INR 200 interest yearly.
- Coupon/Interest: Buying a bond makes the company pay you regular interest until you end up existing the corporate bond. This is known as coupon or interest, which is a specific % of the par value.
- Yield to Maturity: YTM or Yield to Maturity is the in-house returns rate of all the cash-flows in the bond, the principal, the present bond price, and the coupon payments till maturity. Greater the YTM, higher will be the returns, and vice-versa.
- Allocation & Exposure: Corporate bond funds do take the initiative to government securities also, but they can do this only when NO suitable opportunities in the credit space are giving their availability.
- Tax-Efficiency: If you are holding the fund for less than 3 years, you are liable to pay short-term capital gains tax. But, if it’s more than 3 years, then section 112 mandates 20% long-term capital gains tax.
TYPES
Broadly TWO types:
- Type One: It sticks to high-rated companies as in public sector unit or PSU and banks.
- Type Two: It invests in slightly low-rated companies like ‘AA– ‘and below.
Source: cleartax.in
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Mutual fund investments are subject to market risks. Please read the scheme information and other related documents carefully before investing.
