--- title: What is a Corporate Bond Fund? canonical_url: https://sanchaykaro.com/what-is-a-corporate-bond-fund/ last_updated: 2026-05-13T08:39:57+00:00 plugin_version: 1.2.1 --- # What is a Corporate Bond Fund? What is a Corporate Bond Fund? – Complete Simple Guide for Beginners (2026) --------------------------------------------------------------------------- Are you looking for a **safe investment option** that gives **better returns than a fixed deposit**? A **Corporate Bond Fund** could be the right choice for you. This blog explains **what is a Corporate Bond Fund** in very simple language. You will also learn how to invest easily using the **Sanchaay Karo app**. --- ### What is a Corporate Bond Fund? (Very Simple Definition) A **Corporate Bond Fund** is a type of **debt mutual fund** that invests most of its money in **bonds** issued by companies. According to **SEBI** rules, a **Corporate Bond Fund** must invest at least **80% of its total assets** in **corporate bonds** that are rated **AA+ and above** (Axis Bank, Axis Bank) (Fyers, Fyers). These are **high-quality bonds** issued by financially strong companies. Think of it like this: When you put money in a **bank fixed deposit**, your money is lent to one bank. A **Corporate Bond Fund** lends your money to **many reputed companies** like HDFC, NTPC, or Reliance. This gives you **diversification** and often **higher returns** (Axis Bank, Axis Bank) (Fyers, Fyers). **Important:** A **Corporate Bond Fund** is a **debt mutual fund**, not an **equity fund**. It does NOT invest in **company stocks**. It lends money to companies and earns **regular interest income**. The **risk** is much lower than **equity funds** because you are not affected by the ups and downs of the **stock market**. As of 2026, there were **21 Corporate Bond Funds** in India with a total **AUM** of over **₹2.13 lakh crore** (Tickertape, Tickertape). [[What is a Large Cap Fund?](https://sanchaykaro.com/what-is-a-large-cap-fund/)](https://sanchaykaro.com/what-is-a-large-cap-fund/)--- ### How Does a Corporate Bond Fund Work? (Step-by-Step) **Corporate Bond Funds** pool money from many **investors**. A professional **fund manager** then invests that money in **bonds** issued by **highly rated companies**. These **bonds** are like loans. The company borrows money from the **fund** and promises to pay **regular interest** (called **coupon**) and return the **principal** on a fixed date (Axis Bank, Axis Bank) (Fyers, Fyers). The **fund manager** focuses on **high credit quality** and typically invests in **AAA-rated** and **AA+ rated instruments** (Axis Bank, Axis Bank). The **fund** earns **regular interest income** from these **bonds**. This income is passed on to you, the **investor**, as **returns** (Axis Bank, Axis Bank). The **Net Asset Value (NAV)** of the **fund** changes daily based on **interest rate movements** and **credit rating changes** (Fyers, Fyers). When **interest rates** fall, **bond prices** rise, benefiting **investors**. When **interest rates** rise, **bond prices** fall, temporarily reducing **returns** (Fyers, Fyers). **Example:** A typical **Corporate Bond Fund** portfolio may include (Fyers, Fyers): - **75% in AAA-rated corporate bonds** from companies like HDFC, NTPC, or Reliance Industries - **15% in government securities (G-Secs)** for **liquidity** and **safety** - **10% in liquid assets** to meet redemption requests This **diversified portfolio** ensures **regular interest income** while mitigating **credit risk** and **duration risk** (Fyers, Fyers). --- ### Key Features of Corporate Bond Funds FeatureWhat It Means**SEBI Mandate of 80%**At least 80% of assets must be in **corporate bonds** rated **AA+ and above** (Axis Bank, Axis Bank)**Open-ended**You can buy or sell units on any business day**High Credit Quality**Invests in **AAA-rated** or **AA+ rated** instruments, keeping **credit risk** low (Axis Bank, Axis Bank)**Low to Moderate Risk**Considered **low to moderate risk** compared to other **debt funds** (Axis Bank, Axis Bank)**Medium-term Investment Horizon**Ideal for **investors** with a horizon of **2 to 5 years** (Axis Bank, Axis Bank)**Professional Management**Expert **fund managers** handle all decisions (Axis Bank, Axis Bank)**Regular Interest Income**Provides a **steady income stream** through **coupon payments** (Axis Bank, Axis Bank)**Liquidity**Generally offers better **liquidity** than traditional **corporate fixed deposits** (Axis Bank, Axis Bank)--- ### Benefits of Investing in Corporate Bond Funds Here are the main benefits of adding a **Corporate Bond Fund** to your **mutual fund portfolio**: BenefitWhy It Matters**Better Returns than Bank FDs**These funds typically offer **higher yields** than **bank fixed deposits** of similar duration without taking much extra risk (Axis Bank, Axis Bank)**Low Credit Risk**Since most investments are in **high-rated bonds (AA+ and above)** , the chance of **default** is very low (Axis Bank, Axis Bank)**High Liquidity**You can **redeem** your units on any business day, unlike **FDs** where you may pay a penalty (Axis Bank, Axis Bank)**Portfolio Diversification**Adding a **Corporate Bond Fund** to your **portfolio** reduces overall risk (Axis Bank, Axis Bank)**Low to Moderate Volatility**These funds are much less volatile than **equity funds** (Axis Bank, Axis Bank)**No Lock-in Period**You are not forced to stay invested for a fixed period**Suitable for Short to Medium Term**Perfect for **investment horizons** of **2 to 5 years** (Axis Bank, Axis Bank)**Capital Preservation**Investments in **high-rated debt instruments** reduce default risk and help preserve your **capital** (Axis Bank, Axis Bank)**Stable Income Generation**Offers predictable **income** through **interest payments** (Axis Bank, Axis Bank)**Note:** **Corporate Bond Funds** have on average delivered **7.08% to 7.39% annual returns** in the last 1 year (ET Money, ET Money) (ET Money, ET Money). [](https://apirrabbit.com/api/v1/master/LandingPage?arn=ARN-301757)--- ### Who Should Invest in Corporate Bond Funds? (Ideal Investor Profile) **Corporate Bond Funds** are perfect for: - **Conservative investors** who prefer **low-risk investments** and seek **stability** over high returns - **Investors with short to medium-term horizons** (2 to 5 years) (Axis Bank, Axis Bank) (Axis Bank, Axis Bank) - **People who want better returns than bank FDs** but still want a **relatively safe option** - **Investors looking for debt allocation** in their long-term **portfolio** - **Risk-averse investors** who want to avoid **equity market volatility** - **Retirees** who need **regular income** with **capital protection** - **Moderately conservative investors** looking for steady returns (Axis Bank, Axis Bank) **Who should avoid Corporate Bond Funds?** - **Aggressive investors** seeking **very high returns** (consider **equity funds** instead) - **Investors with a very long-term horizon** (over 5 years) – other **debt funds** may offer better post-tax returns - **Investors who cannot tolerate any interest rate risk** --- ### Corporate Bond Fund vs Other Debt Fund Categories Fund TypeWhat It Invests InRisk LevelBest For**Corporate Bond Fund****Corporate bonds** (AA+ and above)Low to Moderate2-5 year horizon**Banking and PSU Fund****Banks**, **PSUs**, **PFIs**Low to Moderate1-3 year horizon**Gilt Fund**Government securities onlyLow (no credit risk)Long-term, risk-averse investors**Credit Risk Fund**Lower-rated corporate **bonds** (AA and below)HighAggressive **debt fund** investors**Liquid Fund**Very short-term money market instruments (up to 91 days)Very LowParking money for a few days or months**Short Duration Fund****Debt instruments** with 1-3 year maturityModerate1-3 year horizon**Dynamic Bond Fund**Varies across **maturities** based on **interest rate** outlookModerate to HighInvestors who understand **interest rate** movements--- ### Risks of Corporate Bond Funds (Must Read) No **mutual fund investment** is without risk. Here are the **risks of Corporate Bond Funds**: RiskExplanation**Interest Rate Risk**When **interest rates** rise, the prices of existing **bonds** fall. This can reduce your **returns** (Axis Bank, Axis Bank)**Credit Risk**Although low, there is still a small risk that a **company** may **default** on its payments (Axis Bank, Axis Bank)**Inflation Risk****Returns** may not always beat **inflation**, especially in a high-inflation environment**Liquidity Risk**During a financial crisis, even good **bonds** may be hard to sell quickly**Lower Returns than Equity**Over the long term, **equity funds** have historically given much higher **returns****NAV Fluctuation****Fund value** may fluctuate slightly based on market **interest rate movements** (Axis Bank, Axis Bank)**Note:** **Corporate Bond Funds** are classified as **moderate risk** schemes by **SEBI** (HSBC Corporate Bond Fund, HSBC Corporate Bond Fund). They carry **lower credit risk** compared to other **Debt Funds** investing in lower-rated securities (Axis Bank, Axis Bank). --- ### Top Corporate Bond Funds in India (2026) Here are some of the **best Corporate Bond Funds** in India based on **AUM** and performance (Tickertape, Tickertape) (Tickertape, Tickertape): Fund NameAUM (₹ Crore)Expense Ratio (Direct)1Y Return (%)3Y CAGR (%)5Y CAGR (%)**Kotak Corporate Bond Fund** (Morningstar Award Winner 2026)~19,1950.35%8.06%7.95%6.40%**ICICI Prudential Corporate Bond Fund**~34,6290.35%8.08%8.04%6.67%**Axis Corporate Bond Fund**~10,0880.36%8.38%8.18%6.67%**Franklin India Corporate Debt Fund**~1,3090.25%9.48%8.29%6.57%**HDFC Corporate Bond Fund**~36,3810.36%7.36%7.89%6.30%**Aditya Birla SL Corporate Bond Fund**~30,1310.33%7.26%7.80%6.38%**SBI Corporate Bond Fund**~25,0540.36%7.98%7.82%6.12%**Nippon India Corporate Bond Fund**~11,2750.36%7.96%8.10%6.83%*Data sources: Tickertape, Morningstar, ET Money* **Note:** The **Kotak Corporate Bond Fund** was awarded the **Best Corporate Bond Fund** at the **Morningstar Awards for Investing Excellence India 2026** (Morningstar, Morningstar). *Disclaimer: Past performance does not guarantee future returns. Please consult your **financial advisor** before investing.* --- ### Taxation on Corporate Bond Funds (Simple Rules for FY 2026-27) **Corporate Bond Funds** are treated as **debt mutual funds** for **taxation** purposes. **Capital gains tax** rules are different from **equity funds**. TypeHolding PeriodTax Treatment**Short Term Capital Gains (STCG)**Less than 3 yearsGains added to your **income** and taxed as per your **income tax slab rate** (Fyers, Fyers)**Long Term Capital Gains (LTCG)**3 years or moreGains taxed at **20%** after **indexation** benefit (Fyers, Fyers)**Important:** As per the **Union Budget 2023**, the **indexation** benefit for **debt mutual funds** was removed for investments made on or after **April 1, 2023** (Axis Bank, Axis Bank). For such investments, all **gains** are added to your **income** and taxed as per your **slab rate**, regardless of the holding period (Axis Bank, Axis Bank) (HSBC Corporate Bond Fund, HSBC Corporate Bond Fund). **Key tax rules for FY 2026-27:** - If you invested **before April 1, 2023**, you may still be eligible for the old **tax regime** (20% with **indexation** after 3 years) (Fyers, Fyers) - **Dividends** (IDCW) are added to your **income** and taxed as per your **slab rate** - The **fund house** deducts **10% TDS** if your **dividend** exceeds **₹5,000** in a financial year --- ### How to Invest in Corporate Bond Funds Using Sanchaay Karo App Now that you understand what a **Corporate Bond Fund** is, the next step is **investing**. The easiest way is through the **Sanchaay Karo app**. **Sanchaay Karo** is a simple, trusted, and **SEBI-registered** mutual fund investment platform. It helps you invest in **top Corporate Bond Funds** and hundreds of other funds with just a few taps. #### Why Choose Sanchaay Karo App for Corporate Bond Fund Investment? - **Smart Goal-Based Investing**: Tell the app your goal (retirement, child's education, buying a house). It suggests the right **Corporate Bond Fund** based on your **risk profile** and **investment horizon** - **Simple Dashboard**: See all your investments in one place – no confusion or clutter. Track **NAV**, returns, and **portfolio** in real time - **Quick KYC**: Complete your **KYC online** using Aadhaar and PAN in just 5 minutes. **Paperless KYC** is fully supported - **Start SIP from ₹500**: You don't need a lot of money. Start small with a **Systematic Investment Plan (SIP)** . You can do **monthly SIP**, **weekly SIP**, or **daily SIP** - **Track Performance**: Get regular updates on how your **Corporate Bond Fund** is performing against its **benchmark** - **No Hidden Charges**: Transparent and low-cost. You can choose between **regular plan** and **direct plan** options. **Direct plans** have lower **expense ratios** - **Stay On Track**: Get timely reminders so your **SIPs** never stop - **Access to All AMCs**: Invest in **Kotak Corporate Bond Fund**, **ICICI Prudential Corporate Bond Fund**, **HDFC Corporate Bond Fund**, **SBI Corporate Bond Fund**, and many more #### Steps to Invest in Corporate Bond Funds (Very Easy) 1. **Download** the **Sanchaay Karo app** from Google Play Store or Apple App Store 2. **Sign up** using your mobile number and email 3. **Complete KYC** – upload **PAN card** and Aadhaar (fully paperless). You can also do **video KYC** if needed 4. **Search** for "Corporate Bond Fund" or let the app recommend one based on your **financial goals** 5. **Compare** different **Corporate Bond Funds** based on **returns**, **expense ratio**, **exit load**, and **fund manager** track record 6. **Choose** between **lumpsum** (one-time) or **monthly SIP** investment 7. **Pay** using **UPI**, net banking, or debit card 8. **Done!** Your investment starts growing. You will receive regular statements 👉 **\[Click Here to Download Sanchaay Karo App Now\]** () --- ### Important Tips Before Investing in Corporate Bond Funds Before you invest in a **Corporate Bond Fund**, keep these points in mind: 1. **Understand the Investment Horizon**: These funds are best for **2 to 5 years** (Axis Bank, Axis Bank). Do not invest for less than 2 years, as you may lose money if **interest rates** rise. 2. **Check Credit Rating Exposure**: Ensure the **fund** invests primarily in **AA-rated and above instruments** for lower **credit risk** (Axis Bank, Axis Bank). 3. **Track Interest Rate Trends**: **Corporate Bond** values move inversely with **interest rates** (Axis Bank, Axis Bank). Consider current and expected **rate cycles** before investing (Axis Bank, Axis Bank). 4. **Compare Expense Ratios**: **Direct plans** have much lower **expense ratios** (often 0.20–0.40%) than **regular plans** (often 0.70–1.00%). Over time, this difference matters. 5. **Use SIP for Disciplined Investing**: **Systematic Investment Plans (SIPs)** reduce the impact of **market volatility** and encourage disciplined investing (Axis Bank, Axis Bank). 6. **Avoid for Long-Term Wealth Creation**: **Corporate Bond Funds** are not suitable for **long-term wealth creation** (over 5 years). **Equity funds** have historically given much higher **returns** over the long term. 7. **Check Exit Load**: Most **Corporate Bond Funds** have **nil exit load** after a certain period, but some may have an **exit load** for redemptions within 1-2 years. Always check before investing (HSBC Corporate Bond Fund, HSBC Corporate Bond Fund) (SBI Corporate Bond Fund-Growth, SBI Corporate Bond Fund-Growth). 8. **Check Yield to Maturity (YTM)** : **YTM** indicates the **portfolio's** current **income potential**. Higher **YTM** means higher expected **returns**, but also potentially higher risk. 9. **Monitor Credit Ratings**: Keep track of the **credit ratings** of the **bonds** in the **fund's portfolio**. A **credit downgrade** can impact the **fund's NAV**. --- ### Frequently Asked Questions (FAQs) About Corporate Bond Funds **Q1: Are Corporate Bond Funds safe?** A: **Corporate Bond Funds** are considered **low to moderate risk** compared to other **debt funds** (Axis Bank, Axis Bank). However, they are not **risk-free**. They carry **interest rate risk** and a small amount of **credit risk**. Most **investors** consider them **safer than credit risk funds** but riskier than **gilt funds**. **Q2: Can I lose money in Corporate Bond Funds?** A: Yes, you can lose money in the **short term**, especially if **interest rates** rise suddenly or if a **bond** in the **portfolio** gets **downgraded**. However, if you hold for **2 to 5 years**, the chance of **loss** is very low. **Q3: What is the minimum SIP amount for Corporate Bond Funds?** A: Most **Corporate Bond Funds** allow **SIP** starting from **₹500** per month. Through the **Sanchaay Karo app**, you can start with as little as **₹500**. **Q4: How much returns can I expect from Corporate Bond Funds?** A: Historically, **Corporate Bond Funds** have delivered **7% to 9% annual returns** over 3-year periods (Fyers, Fyers). This is typically higher than **bank FDs**. **Q5: Are Corporate Bond Funds better than Fixed Deposits?** A: **Corporate Bond Funds** often offer **higher returns** than **FDs** and have **no lock-in period**. However, **FDs** offer **guaranteed returns** (subject to bank limits), while **mutual funds** do not. **Q6: What is the difference between Corporate Bond Funds and Banking & PSU Funds?** A: **Corporate Bond Funds** invest primarily in **corporate bonds** of private and public companies. **Banking & PSU Funds** invest primarily in **debt instruments** of **banks**, **Public Sector Undertakings (PSUs)** , and **Public Financial Institutions (PFIs)** (Economic Times, Economic Times). **Q7: How are Corporate Bond Funds taxed?** A: For investments made **after April 1, 2023**, all **gains** are added to your **income** and taxed as per your **slab rate** (Axis Bank, Axis Bank). For investments made **before April 1, 2023**, if held for **3 years or more**, **gains** are taxed at **20% after indexation** (Fyers, Fyers). **Q8: Can NRIs invest in Corporate Bond Funds?** A: Yes, **NRIs** can invest in **Corporate Bond Funds** through **Sanchaay Karo app** using their NRE/NRO account. **Q9: What is the expense ratio of Corporate Bond Funds?** A: **Expense ratios** for **direct plans** typically range from **0.20% to 0.40%**. **Regular plans** have higher **expense ratios** (around 0.70–1.00%). **Q10: What is the exit load for Corporate Bond Funds?** A: Many **Corporate Bond Funds** have **nil exit load**. However, some may charge an **exit load** for redemptions within 1-2 years (HSBC Corporate Bond Fund, HSBC Corporate Bond Fund) (SBI Corporate Bond Fund-Growth, SBI Corporate Bond Fund-Growth). Always check the **Scheme Information Document (SID)** before investing. --- ### Final Words – Should You Invest in a Corporate Bond Fund? **Yes**, if you: - Are a **conservative investor** seeking **low to moderate risk** options - Have an **investment horizon** of **2 to 5 years** - Want **better returns** than **bank fixed deposits** - Already have **equity funds** in your **portfolio** and want to add **debt allocation** - Are looking for **regular income** with **high liquidity** - Want to **diversify** your **portfolio** and reduce overall risk - Are a **moderately conservative investor** looking for steady returns (Axis Bank, Axis Bank) **No**, if you: - Are an **aggressive investor** seeking **very high returns** - Have a **very long-term horizon** (over 5 years) – **equity funds** are better - Need **guaranteed returns** – **FDs** may be more suitable - Cannot tolerate any **interest rate risk** **Corporate Bond Funds** offer an excellent **balance** of **safety**, **returns**, and **liquidity**. They are among the best **debt fund** choices for **conservative investors** and those looking for **short to medium-term** goals. The golden rule for **Corporate Bond Fund** investing: **Understand your time horizon, check the fund's credit rating exposure, compare expense ratios, and use SIP for disciplined investing.** Start your **investment journey** today with the **Sanchaay Karo app**. 👉 **\[Click Here to Download Sanchaay Karo App Now\]** () --- **Disclaimer:** This blog is for **educational purposes** only. **Mutual fund investments** are subject to **market risks**. **Corporate Bond Funds** carry **interest rate risk** and a small amount of **credit risk**. Please read all **scheme related documents** carefully, including the **Scheme Information Document (SID)** and **Statement of Additional Information (SAI)** , and consult your **financial advisor** before investing. **Past performance** does not guarantee **future returns**. The **Sanchaay Karo app** is a platform for mutual fund investments; all investments are subject to **market risk**.