With signs of decline in inflation in economies around the world, there is now every possibility that central banks may also cut interest rates. The first indication of this has come from the US Federal Reserve, which may start cutting interest rates in early June. The European Central Bank can also take such a step and the Reserve Bank of India is also keeping a close eye on the situation.
Indexation benefit has ended
Looking at this sentiment, investors are now again Investors have started showing interest in corporate bond funds as returns from corporate bonds increase in the backdrop of falling interest rates. This is despite the fact that the indexation benefit applicable to these funds has been abolished. However, these funds still offer the benefits of rising interest rates and low cost ratios.
This is how interest rates impact returns
Corporate bond funds are debt funds, which are Invests in corporate bonds and government securities rated + and above. An example of this is Nippon India Corporate Bond Fund, which is giving annual returns of more than 8 percent. This is a much higher return than the average for this category. The rates of return received from corporate bonds are directly affected by changes in interest rates, because bond prices and interest rates move in the opposite direction to each other.
This is how the returns on these funds have been received.
Dwaipayan Bose, co-founder of Advisor Khoj, says corporate bond funds have performed well in the last one year. Nippon India Corporate Bond Fund has given the best performance of 8.39 per cent, while almost half of the total funds in this category have given returns of more than 8 per cent. These include Axis Corporate Debt Fund, HDFC Corporate Bond Fund, Baroda BNP Paribas, HSBC and Aditya Birla Sun Life.
Better option for such investors
Corporate bond mutual funds are risk averse. Escapees are ideal for investors who are looking for high returns on investment. Corporate bond funds are actually debt instruments and ensure safety of capital. The tenure of top corporate bond funds generally ranges between 1 to 4 years, which allows investors to maintain their liquidity. Apart from offering high returns, corporate bond funds can be bought and sold at any time, giving investors the flexibility to withdraw cash when they need the money. Most financial advisors recommend including these funds to build a diversified and balanced portfolio.
Disclaimer: The information provided here is for informational purposes only. It is important to mention here that investment in markets/mutual funds is subject to market risks. As an investor, always consult an expert before investing money. ABPLive.com never advises anyone to invest any money.
Also read: Petrol pumps strike, there may be trouble in these cities for next 2 days
Get more latest business news updates