Features of Corporate Bond Debt Funds
1. Investment Allocation: These mutual funds primarily invest in corporate debt instruments. Bonds, commercial papers, debentures, and structured obligations are examples of these funds. Each of them may have a different maturity period and risk profile. When there are no feasible opportunities for high-quality corporate debt, corporate bond funds invest a small proportion in government securities. They can also invest in sovereign fixed-income securities.
2. Higher Returns: Corporate bond funds provide much better returns than other debt instrument on the market. Corporate debt instruments may pay average returns of 8-10%, but government-held bonds only provide around half of that.
3. Liquidity of Funds: Corporate debt funds are short-term in nature because they are generated to satisfy a company’s short-term financial needs. Additionally, corporate bond mutual funds can be purchased and sold at the investor’s discretion. This increases the liquidity of the financial resource, allowing it to be converted to cash as needed.
4. Security: Corporate debt funds carry less risk than shares since the former imposes a financial obligation (liability) on the corporation. Equity investments are subject to a company’s profits and losses in a single fiscal year, which makes them riskier.
5. Variety of Funds: Top corporate bond funds can be identified based on fund tenure as well as the credit ratings of the companies chose for the mutual fund portfolio growth. This differentiation caters to different sorts of investors and their market investment behaviours. Individuals searching for a short-term investment opportunity in low-risk bonds can easily select those with a shorter maturity period. There are short-term, medium-term, and long-term bonds available as well as some perpetual bonds in the market.
6. Bond Yields: A bond’s current yield is the sum of its yearly returns. Yield to Maturity (YTM) is the internal rate of return on a bond’s cash flows. This includes the bond’s coupon payments, principle investment, and price change gains. The higher the YTM, the higher will be the profits.
7. Maturity Duration: The maturity term of securities held by a corporate bond fund is unrestricted. While some funds invest in bonds with short maturities, others invest in bonds with medium to long maturities ranging from 4 to 7 years.