Unlike some central banks globally, which have hiked rates due to rising inflation, the Reserve Bank of India has so far not done so. It is widely expected to refrain from raising the repo rate on April 8, although with the threat of inflation, the rate hike is likely to happen sooner rather than later.
In this backdrop of interest uncertainty, investors with moderate risk appetite and an investment horizon of 2-3 years can consider investing in one of the top performing corporate bond funds. HDFC Corporate Bond Funds are a good option here.
While these funds are exposed to interest rate risk, unlike many debt funds with lower maturities, these funds can currently invest in debt papers of relatively high maturities to benefit from the steeper yield curve. corporate bond Funds are debt funds that must invest at least 80% of their assets only in the highest-rated corporate bonds (typically AA+ and above). This ensures a certain minimum level of credit quality, giving investors some comfort.
better returns
HDFC Corporate Bond Fund has given an average one-year return of 8.2 per cent, three-year return of 8.5 per cent and five-year return of 8.2 per cent for the period January 2016 till date. In comparison, the Corporate Bond Fund category has generated respective returns of 7.5%, 7.7% and 7.4% over the period (all returns are CAGR, for regular growth schemes). The analysis is based on rolling returns for funds with a history of at least five years.
HDFC Corporate Bond Fund is being managed by Anupam Joshi since October 2015. It follows a mix of accrual and duration strategies. That is, it derives returns from the interest earned on bonds in its portfolio and by modifying its duration – when interest rates are expected to decline and vice versa – to benefit from changing rate cycles. This offers the potential for higher returns but also exposes the fund to interest rate sensitivity.
portfolio details
As of February-end, HDFC Corporate Bond Fund held around 97% of its portfolio in AAA, A+ and sovereign debt papers. The balance was in cash and cash equivalents. In the past too, the fund has held 90% or more of its portfolio in such papers. As of February-end, the fund had a total maturity of 4.3 years. Ace MF data shows that 40% of the fund’s portfolio is in debt papers, with maturities of more than five years, which is higher than many peer funds. It is most likely to benefit from higher returns from longer maturity bonds given the higher yield curve.
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