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    Best corporate bond funds to invest in 2021

    Synopsis

    Corporate bond funds were among the favourites of mutual fund investors and advisors alike, in the last one year.

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    Here's a monthly update on our recommended corporate bond funds in November. The good news is that there is no change in the list this month. Corporate bond funds are among the favorites of mutual fund investors and advisors alike. Corporate bond funds category has offered 3.72% average returns in the last one year.

    Another update- one of recommended scheme, Kotak Corporate Bond Fund, lies in the 3rd quartile for 6 months. If you are invested in this scheme, continue to hold your investment. We will update you about its performance regularly.

    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. Corporate bond funds are less volatile than credit-risk funds, long-term debt schemes and gilt schemes, say mutual fund advisors.

    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 is a great plus point in the current market conditions, where there are no takers for lower-rated bonds. This investment mandate makes them relatively less risky than credit risk funds. However, since we are dealing with companies, there is always a bit of risk.

    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.

    Best corporate bond funds to invest in 2021

    Kotak Corporate Bond Fund7

    ICICI Prudential Corporate Bond Fund

    Aditya Birla Sun Life 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.

    Methodology:

    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



    (Disclaimer: past performance is no guarantee for future performance.)







    ( Originally published on Jan 07, 2021 )
    The Economic Times

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