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Best corporate bond mutual funds to invest in 2020

As per Sebi mandate, corporate bond funds must invest at least 80 per cent of their corpus in the highest-rated corporate bonds.

ET Online|
Last Updated: Feb 20, 2020, 12.46 PM IST
Here's the monthly update on our recommended corporate bond schemes. There is no change in our recommendations in this month. If you are investing in these schemes, you may continue to invest and hold on to these schemes. We will update you every month about the performance of these schemes.

As per Sebi norms, corporate bond funds have the mandate to invest at least 80% of their corpus in the highest-rated corporate bonds. That means these schemes would invest most of their corpus in corporate bonds that are rated AAA. This investment mandate makes them a relatively less risky than credit risk funds. However, since we are dealing with companies, there is always a bit of risk.

As you know, the highest-rated companies are much more reliable than their counterparts rated lower. However, a higher rating doesn't mean that the company ratings won't come down in future or they may not default on their payment. IL&FS saga is a clear example of how a so-called reliable bet can go wrong. But the chances of them defaulting or suddenly becoming junk-rated are remote.

Corporate bond funds are less volatile than credit-risk funds, long-term debt schemes and gilt schemes, say mutual fund advisors. Corporate bond funds category has offered 9.24% returns in the last one year.

Mutual fund advisors believe that if you are looking for a debt mutual fund scheme to invest for a medium term of three to five years and don't want to take too much risk on your investment, you may think of investing in corporate bond funds. In other words, if you have a moderate risk profile and you want invest for a medium term without thinking about the market forces like interest rates, you may invest in corporate bond funds. The ideal investment horizon for these schemes in three to five years.

Best corporate bond funds to invest in 2020
  • Kotak Corporate Bond Fund
  • ICICI Prudential Corporate Bond Fund
  • Nippon India Prime Debt Fund
  • Aditya Birla Sun Lie Corporate Bond Fund
  • HDFC Corporate Bond Fund

If you are curious about how we have chosen these schemes, you may go through the methodology below.

ETMutualFunds.com has employed the following parameters for shortlisting the debt mutual fund schemes.

1. Mean rolling returns: Rolled daily for the last three years.

2. Consistency in the last three years: Hurst Exponent, H is used for computing the consistency of a fund. The H exponent is a measure of randomness of NAV series of a fund. Funds with high H tend to exhibit low volatility compared to funds with low H.
i)When H = 0.5, the series of return is said to be a geometric Brownian time series. These type of time series is difficult to forecast.
ii)When H <0.5, the series is said to be mean reverting.
iii)When H>0.5, the series is said to be persistent. The larger the value of H, the stronger is the trend of the series

3. Downside risk: We have considered only the negative returns given by the mutual fund scheme for this measure.
X =Returns below zero
Y = Sum of all squares of X
Z = Y/number of days taken for computing the ratio
Downside risk = Square root of Z

4. Outperformance:
Fund Return – Benchmark return. Rolling returns rolled daily is used for computing the return of the fund and the benchmark and subsequently the Active return of the fund.

5. Asset size:
For Debt funds, the threshold asset size is Rs 50 crore
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