Financial Awareness Level
What is Corporate Bond scheme?
Introduction
Corporate bond scheme is a category of debt mutual fund schemes that primarily invests in corporate bonds issued by companies with only in AA+ and above rated corporate bonds. These funds aim to provide relatively stable returns while maintaining a relatively lower risk compared to equity investments.
What is Corporate Bond Mutual Fund scheme?
Corporate bond Mutual Fund scheme invests minimum 80% in corporate bonds only in AA+ and above rated corporate bond. These schemes focus on high-quality corporate bonds, ensuring a balance between risk and return for investors looking for a fixed-income option.
How Do Corporate Bond scheme Work?
The returns from these schemes come in the form of interest payments and capital appreciation. Since they invest in relatively secure corporate debt, they tend to be less volatile than equity funds. (You are recommended to seek advice from financial advisor before you take any/refrain from any action)
Benefits of Corporate Bond scheme:
- Lower Risk than Equity Schemes: Since they invest in high-rated corporate bonds, they generally carry lower risk than equity schemes.
- Regular Income: Investors can benefit from periodic interest payments generated by the underlying bonds.
- Diversification: This scheme provide exposure to multiple corporate debt instruments, reducing investment risk. (You are recommended to seek advice from financial advisor before you take any/refrain from any action)
Risks Associated with Corporate Bond scheme
- Interest Rate Risk: Fluctuations in interest rates can affect bond prices and the scheme’s net asset value (NAV).
- Credit Risk: While this scheme invests in high-rated corporate bonds, there is still a possibility of credit downgrades or defaults.
- Liquidity Risk: In volatile market conditions, some bonds may not be easily tradable, impacting liquidity.
Who Should Invest in Corporate Bond scheme?
- Investors looking for a fixed-income investment with relatively lower risk.
- Conservative investors who prefer relatively stable returns.
Conclusion
Corporate bond scheme offers a stable investment option with relatively lower risk while generating better returns. This scheme are ideal for investors seeking a balanced approach for stepping towards wealth creation through fixed-income securities.
Additional links
What is a Mutual Fund? - Beginner's Guide to Investing
AMFI - Introduction to Mutual Funds
FAQ Section
What are Corporate Bond scheme?
Corporate bond scheme is mutual fund scheme that invest primarily in corporate bonds issued by companies with only in AA+ and above rated corporate bonds, offering a balance between risk and return for fixed-income investors.
How do Corporate Bond scheme work?
This scheme allocate invests minimum 80% in corporate bonds only in AA+ and above rated corporate bonds. Investors earn returns through interest payments and potential capital appreciation as bond prices fluctuate.
Are Corporate Bond scheme safe?
They are considered relatively safe as they invest in high-rated corporate bonds. However, they are subject to credit risk, interest rate fluctuations, and liquidity risk and other applicable scheme related risks.
What are the key benefits of investing in Corporate Bond scheme?
- Lower Risk than Equity Funds: Invest in high-rated corporate bonds, making them less volatile.
- Regular Income: Provide periodic interest payouts from underlying bonds.
- Diversification: Spread investments across multiple corporate issuers, reducing risk.
What risks are associated with Corporate Bond scheme?
- Interest Rate Risk: Bond prices may fluctuate with changing interest rates.
- Credit Risk: Corporate bonds may face credit downgrades or, in rare cases, defaults.
- Liquidity Risk: Some bonds may be difficult to sell in adverse market conditions.
Who should invest in Corporate Bond scheme?
- Investors seeking a fixed-income investment with relatively lower risk.
- Conservative investors who prefer low risk. (You are recommended to seek advice from financial advisor before you take any/refrain from any action).
How liquid are Corporate Bond scheme?
They offer moderate liquidity, and investors can redeem units as per scheme-specific exit load rules, but bond market conditions may impact liquidity.
How are Corporate Bond scheme taxed?
Short-term capital gains (holding period < 3 years) are taxed as per the investor’s income tax slab. Long-term gains (holding period ≥ 3 years) are taxed at 20% with indexation benefits. (You are recommended to seek advice from tax advisors for understanding latest tax regulations)
How can I invest in Corporate Bond scheme?
Investors can invest through mutual fund platforms, financial advisors, or directly via asset management companies after completing KYC requirements.
Did you find this article Interesting?
1
2
3
4
5
Recommended For You
Intermediate
How Do Mutual Funds Invest In Bonds?
5 min read
Intermediate
How to Select a Mutual Fund
5 min read
Intermediate
How to Track Mutual Funds
5 min read
An Investor Education And Awareness Initiative
Visit https://www.hdfcfund.com/information/key-know-how to know more about the process to complete a one-time Know Your Customer (KYC) requirement to invest in Mutual Funds. Investors should only deal with registered Mutual Funds, details of which can be verified on the SEBI website (www.sebi.gov.in/intermediaries.html). For any queries, complaints & grievance redressal, investors may reach out to the AMCs and / or Investor Relations Officers. Additionally, investors may also lodge complaints directly with the AMCs. If they are not satisfied with the resolutions given by AMCs, they may raise complaint through the SCORES portal on https://scores.sebi.gov.in/scores-home/. SCORES portal facilitates investors to lodge complaint online with SEBI and subsequently view its status. In case the investor is not satisfied with the resolution of the complaints raised directly with the AMCs or through the SCORES portal, they may file any complaint on the Smart ODR on https://smartodr.in/login.
The information is for general purposes only and not an investment advice. Readers should seek professional advice before taking any investment related decisions.
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY
