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Corporate Bond Mutual Funds

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THE various movements in the debt market have changed the profiles of several instruments in terms of popularity. Corporate bonds too have seen something similar, with overall interest rates in the economy dipping and prompting more trading in these bonds.

Also impacted have been mutual funds, with an increased interest in corporate bond funds. Here is an overview of the scenario and what it means for investors.

Corporate bond funds:

There are different kinds of debt funds in the market. They invest their corpus into debt securities, which keeps the risk element within limits.

The debt portfolio offers the investor several options as regards what exposure the fund would get. One option is to go for corporate bonds.

Here, the fund will invest its corpus into bonds issued by different companies. These bonds are then traded on the debt market. This allows the fund-manager to handle the scheme in accordance with the mandate he has got.

Additional activity:

There are already three corporate bond funds in the market, namely Templeton India Corporate Bond opportunities, ICICI Pru Corporate Bond Regular and Principal Debt opportunities Corporate Bond. The investor can thus easily pick the fund for his portfolio. He may have a wider range of choice in future, with more fund houses planning similar schemes. This is good for the investor who can look at building a good, varied portfolio.

Investment decision:

But the investor must make an informed decision while choosing a corporate bond fund. For a start, the investor can chose some simple, debtoriented funds. Once he gets more familiar with the complexities of the market, he can vary his selection. Investors looking to opt for this route must assess the degree of exposure this would mean for them and the attendant risks. A corporate bond fund would be an investment option when this would seem to offer a higher yield or return.

This would happen when the market conditions, suggesting higher chances of capital appreciation. Usually, corporate bonds give a yield higher than government securities do. But they come with an added element of risk. So both factors need to be assed. An investor should select such funds for his portfolio when they cannot invest in such securities directly. The risk is that a sudden turn of events, like the recent steps taken by RBI to curb rupee speculation, may hit the performance of such funds. One must also take a longer view of such investments, because these funds need adequate to show results.

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