Is it a good time to invest in a corporate bond fund? | Value Research Let’s understand if corporate bond funds can be a good investment choice for you
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Is it a good time to invest in a corporate bond fund?

Let's understand if corporate bond funds can be a good investment choice for you

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If invested in a corporate bond fund, is it suitable at this time? - Sanjoy Choudhuri

Corporate bonds funds appear to be a wise investment right now, given the rising interest rates. These funds invest 80 per cent of their money in companies with the best credit ratings - companies that are financially stable, never default, and make their loan payments on time.

However, there is a slight catch when it comes to corporate bond funds.

These funds mostly stick to investing in corporate bonds and allocate less towards purchasing any other debt securities. Also, as an investor, you really can't make out the duration of these funds - some AMCs administer these funds with a maturity of four to five years or more, others adhere to the lower end, and some employ a roll-down maturity method.

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So what should you do?
Choose a short-duration fund. They invest across several categories of debt assets, thus making them more diversified, unlike corporate bond funds.

Short-duration funds invest in bonds with a Macaulay duration of one to three years, which makes them fairly predictable when it comes to maturity structure. This can help investors plan their investments accordingly.

In addition, these funds are essentially actively managed, but they do so within specific, well-defined parameters for the duration (weighted average for the portfolio) and credit calls (changes in credit risk based on the manager's preference).

And to answer the question as to whether you should invest in debt security today, then yes, you can go for short-duration funds. They should be sufficient for your main debt portfolio and financial goals that extend beyond one year.

Click here to check out the list of funds hand-picked by our analysts.

Suggested read: Which debt funds to pick in a rising interest rate scenario?

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