Corporate bond funds have been among the most sought-after debt fund categories this financial year so far. Between April and August this year, this category has raked in Rs.11,324 crore.
Experts feel inflows in corporate bonds have gained popularity among investors due to attractive returns. Most corporate bond funds have given returns in a range of 8-11% in the past one year. Another reason is exposure to high rated papers. After series of credit events, many investors prefer investing in schemes that hold high quality debt securities to avoid credit risk. A corporate bond fund does not take credit risk, as it invests at least 80% of its total assets in AA+ and above rated corporate bonds.
Rahul Jain, Senior VP Research at International Money Matters said that investing in corporate bonds makes sense if an investor does not want to take credit risk. However, he feels that corporate bonds are unlikely to repeat last year’s performance, as most fund managers have shifted to AAA+ rated papers.
Suresh Sadgopan, Founder of Ladder7 Financial Advisories, said that corporate bond funds have gained popularity because investors perceive it as a low-risk product, which could deliver reasonably good returns. “I have been recommending corporate bond funds for some time now. Last year, some of the funds did well to give 9-11% returns. However, I feel this is not going to be the case every year and tell my clients to expect 7% return, if they stay invested for 3-5 years period.”
Joydeep Sen, debt expert and founder of wiseinvestor.in said, “This trend of flight to perceived safety will continue as long as investors come across reports of credit defaults. As a result, credit risk funds may continue to see outflows while categories such as corporate bond funds and banking & PSU bond funds will rake in money.”
Joydeep feels that investors who do not want to take credit risk should invest in corporate bond funds. However, if an investor can stomach volatility and take higher risk they can opt for credit risk funds.
