Corporate bond mutual funds: Key things to know before you invest
Corporate bond funds on an average have generated 9.60% returns in the last one yearThe one-year top performer in the category, L&T Triple Ace Bond Fund has delivered 11.32% returns
Debt mutual funds have been in news lately for the bad reasons. Non-payment of dues and delayed payments by companies have hit some mutual fund schemes badly. As a result, a few categories like credit risk funds have seen major outflows in the last one year. In the same time period, another debt mutual fund category -- corporate bond funds saw their assets soar by over 75% from ₹67,000 crore as on July end last year to ₹1,18,000 crore as on the July 31 this year. What are corporate bond funds. Read on to know details.
What is a corporate bond fund?
A corporate bond fund is an open-ended debt mutual fund predominantly investing in highest rated corporate bonds. As mandated by Sebi, a corporate bond fund has to invest at least 80% of its assets in the highest rated instruments.
These funds are less risky than the credit risk funds as they invest in high rated papers but it does not remove the element of risk completely. IL&FS, Zee, DHFL, RCom are great examples where the highest rated companies defaulted on their payments.
How have corporate bond funds performed?
Corporate bond funds on an average have generated 9.60% returns in the last one year. The one-year top performer in the category, L&T Triple Ace Bond Fund has delivered 11.32% returns, followed by Axis Corporate Debt Fund (11.22%) and Sundaram Corporate Bond (11.21%).
How are gains on corporate bond funds taxed?
Short term capital gains on corporate bond funds held for a period of upto 36 months, are added to the investor's income and taxed according to the income tax slab rate.
Long term capital gains on corporate bond funds held for a period of more than 36 months are taxed at the rate of 20% after providing for indexation.
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