Best Corporate Bond Funds To Invest In India 2025
Investing in bonds is quite feasible for an investor who wishes to receive a decent return on investment without taking too much risk. However, bond investment requires careful assessment of issuers, ratings, and other market-related factors. For a risk-averse investor, corporate bond funds are a great alternative to conventional bond investments.
Corporate bond funds are quite similar to mutual funds, where the fund manager allocates a significant portion of the funds to corporations with the best credit ratings, thereby assuring high returns and liquidity to investors. Let us find out more about corporate bond funds, the best corporate bond funds to invest in 2025, and how you can include corporate bond funds in your portfolio.
What Are Corporate Bond Funds?
Corporate bond funds are a category of mutual funds that primarily invest in fixed-income securities issued by corporations. These funds provide a way for investors to earn stable returns by lending money to companies in exchange for periodic interest payments. These funds typically provide consistent returns to investors compared with equity-based mutual funds, whose returns are subjected to market risks.
The default risk of these funds is quite low as the investment is only in securities issued by highly rated companies. Here are the most critical benefits of investing in these funds:
1. Regular Income: Investors receive periodic interest payments, ensuring steady cash flow.
2. Stability: Less volatile than stock market investments, making them suitable for long-term wealth preservation.
3. Diversification Benefits: Reduces risk by investing in a mix of corporate bonds across different industries.
4. Ideal for Conservative Investors: Offers a safer alternative to stock market investments while providing better returns than traditional fixed deposits.
5. Retirement Planning: This can be used for retirement planning and other long-term financial goals.
Difference Between Corporate Bonds And Corporate Bond Funds
Here is a table depicting the differences between corporate bonds and corporate bond funds:
Aspect | Corporate Bonds | Corporate Bond Funds |
Definition | Debt securities issued by companies to raise capital | Mutual funds that invest in a diversified portfolio of corporate bonds |
Investment Mode | Direct investment in individual bonds | Indirect investment through a professionally managed fund |
Risk Diversification | Limited to a single issuer’s creditworthiness | Diversified risk across multiple corporate bonds |
Liquidity | Less liquid, may require holding until maturity | More liquid, as mutual fund units can be bought or sold anytime |
Returns | Fixed interest rate until maturity | Returns vary based on fund performance and market conditions |
Minimum Investment | Higher, usually requires a large capital | Lower, as mutual funds allow investments through SIPs or lump sums |
Management | Requires individual research and monitoring | Professionally managed by fund experts |
Baskets on Grip: Smarter Fixed-Income Investing
For investors looking to diversify without the hassle of selecting individual bonds, Baskets on Grip offer a seamless solution. These pre-curated bond collections are built around specific investment themes, allowing you to gain exposure to multiple fixed-income instruments in a single transaction. Approved by Registered Investment Advisors (RIA), these baskets provide a balanced mix of risk and returns, making them a convenient option for structured investing.
List Of Top Corporate Bond Funds For 2025
After carefully assessing different corporate bond funds in India based on various parameters, we came up with a list of the top 5 performing corporate bond funds in India. Let us understand the selection criteria first:
1. Credit Rating of Bonds: Prefer funds investing in high-quality, AAA-rated bonds to minimise default risk.
2. Yield to Maturity (YTM): Indicates the expected annual return if the bonds are held until maturity.
3. Expense Ratio: Lower expense ratios can enhance net returns by reducing the investment cost.
4. Past Performance & Returns: Analyse historical returns, focusing on 3-year and 5-year Compound Annual Growth Rates (CAGR) to assess consistency.
5. Interest Rate Sensitivity: Understand the fund's duration and how it may react to changes in interest rates influenced by the Reserve Bank of India's policies.
Based on all the above factors, we have shortlisted the following funds:
Fund | 5-Year Return | Credit Rating Profile |
Axis Corporate Bond Fund | 7.06% | Predominantly AAA rated |
ICICI Prudential Corporate Bond Fund | 7.05% | High-Quality AAA rated |
HDFC Corporate Bond Fund | 6.86% | Predominantly AAA rated |
Aditya Birla Sun Life Corporate Bond Fund | 6.99% | Predominantly AAA rated |
Nippon India Corporate Bond Fund | 7.17% | Predominantly AAA rated |
Source: ET Money1
How To Invest In Corporate Bond Funds?
You can invest in corporate bond funds through various online investment platforms that simplify the process of evaluating and comparing fund performance. These platforms provide tools and insights to help investors assess their risk appetite, analyze returns, and make informed decisions. Whether you're looking for steady income or portfolio diversification, corporate bond funds can be a valuable addition to your investment strategy.
Here are the simple steps you can do after selecting the right platform:
1. Complete KYC (Know Your Customer) formalities using PAN, Aadhaar, and bank details on the platform.
2. Select a Corporate Bond Fund (or funds) based on your financial goals and risk appetite.
3. Compare risk-adjusted returns, expense ratios, and credit ratings of different funds.
4. Choose your investment mode: opt for a Systematic Investment Plan (SIP) for disciplined investing or make a lump sum investment for long-term growth.
Factors To Consider Before Investing
Choosing corporate bond funds can be an excellent addition to your portfolio. However, there are a few critical factors that you must consider before investing:
1. Investment Objective: Ensure the fund aligns with your financial goals, whether it's generating regular income, preserving capital or for retirement goals.
2. Credit Risk: Higher-rated bonds (AAA) offer safety but lower returns, while lower-rated bonds (AA and below) provide higher yields but carry default risk.
3. Interest Rate Risk: When interest rates rise, bond prices fall, reducing returns. Funds with longer-duration bonds are more sensitive to interest rate fluctuations.
4. Liquidity: Check exit loads and redemption policies to ensure ease of withdrawal without significant penalties.
You should also consider the taxation part, as gains are taxable as per capital gains tax rules. Holding corporate bond funds for more than 3 years attracts LTCG (Long Term Capital Gain) and, for a lesser period, results in STCG (Short Term Capital Gain).
Risk vs. Return Assessment
The default risk of corporate bond funds is quite low. Due to this, it is often preferred by investors seeking moderate returns without taking high risks. It is an excellent replacement for conventional fixed deposits. However, the risk assumed is not zero. These are perfect for investors seeking stable returns with capital safety.
They carry lower risk than equities but higher risk than government bonds due to credit exposure. Their returns are influenced by credit risk (issuer’s ability to repay), interest rate movements (impact on bond prices), and market liquidity (ease of buying/selling bonds).
Conclusion
Corporate bond funds are an excellent way to enhance your portfolio’s diversification and ensure stable returns over periods. These funds invest in highly-rated fixed-income securities issued by reliable and top companies, thereby reducing the overall default risk. If you are looking for long-term investment tenure, using corporate bond funds can help you attain life goals like retirement planning and a mortgage.
You must, however, assess your risk appetite, investment horizon, and market conditions before investing. Log-in to Grip Invest, a SEBI-regulated platform for high-yield, fixed-income investments, to know more about fixed income opportunities that align with your financial goals.
Frequently Asked Questions On Corporate Bond Funds
1. Is there a lock-in period for corporate bond funds?
No, corporate bond funds do not have a lock-in period, and investors can redeem their investments anytime, although an exit load may apply if withdrawn within a specified period.
2. Which bond is safest in India?
Government bonds, particularly those issued by the Reserve Bank of India (RBI), such as sovereign bonds and treasury bills, are considered the safest due to their zero default risk.
3. Where do I buy corporate bonds?
You can buy corporate bonds through online investment platforms like NSE, BSE, banks, brokerage firms, and specialized platforms like Grip Invest, which facilitate investment in fixed-income securities.
References
1. ET Money, accessed from: https://www.etmoney.com/mutual-funds/debt/corporate-bond/61
Want to stay at the top of your finances?
Join the community of 4 lakh+ investors and learn more about Grip Invest, the latest financial knick-knacks, and shenanigans in the world of investing.
Happy Investing!
Disclaimer - Investments in debt securities/municipal debt securities/securitised debt instruments are subject to risks including delay and/ or default in payment. Read all the offer related documents carefully. The investor is requested to take into consideration all the risk factors before the commencement of trading.
This communication is prepared by Grip Broking Private Limited (bearing SEBI Registration No. INZ000312836 and NSE ID 90319) and/or its affiliate/ group company(ies) (together referred to as “Grip”) and the contents of this disclaimer are applicable to this document and any and all written or oral communication(s) made by Grip or its directors, employees, associates, representatives and agents. This communication does not constitute advice relating to investing or otherwise dealing in securities and is not an offer or solicitation for the purchase or sale of any securities. Grip does not guarantee or assure any return on investments and accepts no liability for consequences of any actions taken based on the information provided. For more details, please visit www.gripinvest.in
Registered Address - 106, II F, New Asiatic Building, H Block, Connaught Place, New Delhi 110001
