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<br>You need to understand that mutual funds don't just invest in stocks, but also in debt instruments. Investors should choose only those mutual funds that are in sync with their risk profile. This article provides information on corporate bond funds, a category of debt fund schemes.<br>
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You need to understand that mutual funds don't just invest in stocks, but also in debt instruments. Investors should choose only those mutual funds that are in sync with their risk profile. This article provides information on corporate bond funds, a category of debt fund schemes.
Corporate bond debt funds • Any company can issue corporate bonds, also called non-convertible bonds (NCD). Organizations or businesses need capital for their day-to-day operations, as well as for future expansion and growth opportunities. To achieve this, companies have two ways: debt and equity instruments. Debt is a safer option since it does not directly affect the shareholders of the company. Therefore, most companies prefer to issue debt instruments to obtain capital for their operation.
Depending on your needs, bank loans can be expensive for corporations. This is where bonds or debentures provide companies with an inexpensive alternative to raise funds. Corporate investment portalbond securities are the underlying portfolios of credit opportunities for debt funds. When you buy a bond, the company borrows money from you. The company will repay the principal after the expiration period mentioned in the agreement. Meanwhile, you will receive the interest (fixed income), known as a coupon. Generally coupon payments in India are made twice a year.
Who should invest in corporate bonds? • Corporate bonds are an excellent option for investors looking for a fixed but higher income from a safe option. Corporate bonds are a low-risk investment vehicle compared to debt funds, as they guarantee capital protection. However, these bonds from Mutual Fund transactions corporateare not entirely safe. If you opt for corporate bond funds that invest in high-quality debt instruments, then it may better serve your financial goals. Long-term debt funds often tend to be riskier when interest rates fluctuate beyond expectations. As a result, corporate bond funds invest in scrips to combat volatility. They usually have an investment horizon of one to four years. This can be an added benefit if it stays invested for up to three years. It can also be more tax efficient if you are at the highest level of income taxes.
Features and benefits of corporate bond funds • Components of corporate bonds • Corporate Mutual Fund invest predominantly in debt securities. Companies issue debt papers, which include bonds, debentures, commercial papers, and structured debentures. All of these components have a unique risk profile and the expiration date also varies.
Bond price • Each bond is priced and dynamic. You can buy the same voucher at different prices, depending on when you choose to buy. Investors should check how it varies from face value; will provide information on the market movement.
Bond face value • This is the amount that the company (bond issuer) pays you when the bond matures. It is the principal of the loan. In India, the face value of a corporate bond is usually 1,000 rupees.
Coupon (interest) • When you buy a bond, the company will pay interest regularly until it comes out of the corporate bond or the bond expires. This interest is called a coupon, which is a certain percentage of the face value.
Current performance • The annual returns you get from the bond are called the current yield. For example, if the coupon rate of a bond with a face value of Rs 1,000 is 20%, the issuer pays Rs 200 as annual interest.
Yield to maturity (YTM) • This is the internal rate of return on all cash flows of the bond, the current price of the bond, coupon payments to maturity, and principal. The higher the YTM, the higher your profitability and vice versa.
Fiscal efficiency • If you hold your corporate bond fund for less than three years, you must pay short-term capital gains tax (STCG) according to your tax plan. On the other hand, Section 112 of the Indian Income Tax requires a 20% tax on long-term capital gains. This applies to those who keep the bond for more than three years.
Exposure and assignment • Corporate investingbond funds sometimes also have small exposures to government securities. But they do it only when there are no suitable opportunities available in the credit space. On average, corporate bond funds will have approximately 5.22% allocation to sovereign fixed income.
Risk and return factors • There is always the possibility that bond issuers will default on their obligations. This default risk is greater for low-rated securities for corporate Investing service and increases exponentially with increasing maturities. If your fund manager invests only in highly rated companies, expect an average return in the 8-10% range. Here, the risk is also minimal. On the other hand, if you invest in a slightly low-rated but well-managed fund, then it can be rewarding. For example, companies tend to offer somewhat higher coupon rates to attract investors. However, there is also the possibility that the fund manager's call to a company will go wrong. Therefore, if a company defaults on interest payments or repayment of principal or the company is further downgraded, then it is a setback for investors.
About Us • CAMS GoCORP is a corporate investment portal designed to take investing by corporates to a new level. Discover simplicity, ease and safety in preparing and submitting Mutual Fund transactions, tracking investments and much more, with CAMS GoCORP. • Website - https://gocorp.camsonline.com/corponline/
