A corporate debt fund is basically a debtscheme which invests a minimum of 80 percent of its total assets in corporate bonds. What business organizations do is that when they need funding to meet their short expenses like insurance premium payment, marketing, advertising, etc. they sell corporate bond funds. A corporate bond fund has become one of the most common ways for corporate organisations to raise funds. They prove to be a feasible alternative as compared to bank loans when it comes to raising funds for short term company expenses.
Add diversification to your investment portfolio with corporate bond funds –
Corporate Debt funds are available in direct and regular plan
Corporate debt funds are available for investment directly from the fund house owning them and also through third party aggregators and brokers. Direct plan is available at the AMC or the fund house whereas a regular is generally sold by a broker. Since there is no third party involvement in the sale / purchase of a direct plan, the expense ratio of direct corporate fund schemes is generally on the lower side.On the other hand, brokers charge commission fees to AMCs for selling funds. These fees are recovered by the AMC by levying a higher expense ratio on regular schemes.
Corporate bond funds are available in SIP and lumpsum investment option
There are multiple ways to invest in corporate bond funds. Investors can either make a onetime lumpsum investment they can opt for a Systematic Investment Plan. SIP is a method that gives investors an opportunity to seek capital appreciation by making small periodic investments towards corporate bond funds. SIP is a modern way to invest small amounts in corporate funds at periodic intervals. However, this small amount should align with the minimum investment amount mentioned in the offer document. Those seeking capital appreciation through systematic investment generally opt for SIP.SIP investments offer several advantages like rupee cost averaging and compounding benefits.
Corporate bond funds offer liquidity
Investments in corporate bond funds do not come with a predetermined lock in period. Investors are free to buy or sell their corporate bond fund units depending on their income needs. One you withdraw an amount that you need, the amount which remains in the corporate bond fund portfolio continues to draw interest depending on market movements.
Add diversification and meet your short term goals
If you want to earn decent profits over the short term that are far better than conservative investments, then you can consider investing in corporate funds. Apart from investing in bonds, these funds also invest in debt instruments and fixed income securities which mature over a stipulated period of time. When you invest in a corporate bond funds, you invest in a diversified portfolio of securities.Thus, investors targeting short term financial goals may consider investing in corporate bond funds.
It is essential for investors to understand their risk appetite before investing. Corporate bond funds might not be exposed to market’s volatile nature, but they are exposed to interest rate risk and credit risk. Also, it is never a good idea for investors to entirely depend on one asset class for income generation. One must diversify their investment portfolio with the right amount of equity and debt classes so that either of the asset classes are able to provide cushion during falling markets.
Hence it is better to consult a financial advisor before investing. Also, it is critical for investors to understand that mutual fund investments, be it equity, debt or any other schemes, they do not guarantee capital gains.