We Indians have long preferred Fixed Bank Deposits (FD) as a leveraged investment alternative. But this is no longer the case. The popularity of FDs is declining as interest rates have fallen, especially over the past year. However, over the past few weeks, interest rates have gained momentum but remain below expectations. For investors looking for low-risk investment choices, corporate bonds could be a good alternative to bank FDs.
Corporate bonds, also called non-convertible debentures, are financial securities issued by companies as a replacement for bank loans. Credit ratings offered by rating agencies can be used to assess the safety of corporate bonds. AAA rated issuers are the safest and have the lowest credit risk compared to AA rated issuers. Unlike government bonds, corporate bonds offer higher yields to compensate investors for credit risk.
Benefits of Investing in Corporate Bond Funds
Corporate bond funds have a higher level of safety than most other types of debt funds because they are mandated to invest the majority of their assets in investment grade debt securities. The fact that these funds rely heavily on high-quality paper improves their liquidity, allowing the fund manager to more effectively adjust the portfolio. Corporate bond funds have consistently outperformed other debt categories, even in the current financial market turmoil.
A 20% long-term capital gains tax with indexation is available if you invest in corporate bond funds for more than three years. Since FD returns are taxed according to income tax brackets, corporate bonds are a useful alternative to FDs for investors in the highest tax bracket.
Corporate bond funds rated by CRISIL
1. L&T Triple Ace Bond Fund – Direct Growth Plan
Rated 5 stars by CRISIL
2. UTI Corporate Bond Fund – Direct Plan-Growth
Rated 3 stars by CRISIL
3. Sundaram Corporate Bond Fund – Direct Plan – Growth
Rated 2 stars by CRISIL
4. HDFC Corporate Bond Fund – Direct Plan – Growth
Rated 4 stars by CRISIL
5. Sun Life Aditya Birla Corporate Bond Fund – Direct Plan – Growth
Rated 1 star by CRISIL
All of these 5 corporate bond funds outperformed their respective category average returns. These funds also outperformed the category’s average annual returns.
|Mutual fund||1 year||2 years||3 years||5 years||Since the creation|
|L&T Triple As Bond Fund – Direct Plan – Growth||6.42%||6.42%||9.83%||8.08%||8.08%|
|UTI Corporate Bond Fund – Direct Plan – Growth||4.91%||6.24%||8.59%||8.40%|
|Sundaram Corporate Bond Fund – Direct Plan Growth||4.91%||6.47%||8.56%||7.68%||7.93%|
|HDFC Corporate Bond Fund – Direct Plan – Growth||5.44%||6.98%||8.51%||7.82%||8.51%|
|Sun Life Aditya Birla Corporate Bond Fund – Direct Plan – Growth||5.26%||7.18%||8.32%||7.83%||8.59%|
SIP – Absolute Returns
|Mutual fund||1 year||2 years||3 years||5 years|
|L&T Triple As Bond Fund – Direct Plan – Growth||2.37%||5.27%||11.10%||22.76%|
|UTI Corporate Bond Fund – Direct Plan – Growth||2.10%||5.14%||10.34%|
|Sundaram Corporate Bond Fund – Direct Plan Growth||2.04%||5.14%||10.29%||20.67%|
|HDFC Corporate Bond Fund – Direct Plan – Growth||2.24%||5.58%||10.77%||21.31%|
|Sun Life Aditya Birla Corporate Bond Fund – Direct Plan – Growth||2.16%||5.58%||10.76%||21.20%|
Investments in mutual funds are subject to market risk. Read all program documents and terms and conditions carefully before investing. The information mentioned above is purely informative and does not guarantee any return. Greynium Information Technology and the author are not responsible for any losses caused as a result of any decision based on the article.
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Article first published: Monday, March 7, 2022, 3:55 p.m. [IST]