Why Should Investors Add Corporate Bond Funds To Their Mutual Fund Portfolio?
As hard working individuals, we deserve to achieve our life’s short term and long term financial goals. Those with a defined set of financial goals are emotionally connected to their investments. That’s because we want to see ourselves become financially successful and fulfil our goals and dreams that we always aspired to achieve. Financial advisors generally suggest investors to first make a financial plan before investing. Financial planning is determining your life’s short, medium and long term goals and prioritizing them according your needs. There is a plethora of investment schemes out there in the market and investors must not choose an investment avenue just based on a particular investment scheme’s past performance.
If you compare conservative schemes like bank fixed deposits, firstly they offer low fixed interest rates that are on the low end. Secondly, they come with a lock in period, thus providing zero liquidity to an investor’s portfolio. But if you consider mutual fund schemes, these are a pool of professionally managed funds which invest across a diversified portfolio of securities. Asset management companies owning mutual funds collect money from investors sharing a common investment objective and invest this pool of funds across the Indian and foreign economy. Depending on the nature of the scheme and its investment objective, a mutual fund may invest across various money market instruments like company stocks, government securities, corporate bonds, commercial papers, debentures, company fixed deposits, etc. Mutual fund investors are referred to as unit holders and they are allotted units in quantum with the investment amount and depending on the scheme’s existing NAV (net asset value).
What are corporate bond funds?
A corporate bond fund is basically a mutual fund which allocates 80 percent of its total assets in corporate bonds. What business organizations do is that when they need funding to meet their short expenses like insurance premium payment, marketing, advertising, etc. they sell corporate bond funds. A corporate bond fund has become one of the most common ways for corporate organizations to raise funds. When it comes to raising funds for short term company expenses, corporate bond funds have proven to be an effective alternative as compared to bank loans.
Why should investors add corporate bond funds to their investment portfolio?
Several mutual fund advisors recommend investors to never depend on one asset class for income generation. That’s because it is less likely for all the asset classes to outperform or underperform in tandem. This is why it always a good idea to spread your investments across equity and debt assets. Adding corporate bond funds to your mutual fund portfolio might help investors provide cushion during falling equity markets. Also, corporate bond funds offer the option of SIP investment. A Systematic Investment Plan or SIP is an easy and convenient way to invest in corporate bond funds. If you are new to mutual funds or investing in general, then SIP might help you inculcating the discipline of regular investing. One has to be KYC compliant in order to invest in mutual funds via SIP. Investors can also refer to an online SIP calculator in order to understand how much money they need to invest regularly in a short term fund scheme in order to target their financial goals.
Corporate bond funds might prove a decent investment option to add to one’s debt portfolio. These are even ideal for investors with a low risk appetite or for those who are shifting from traditional investment avenues. However, investments in corporate funds do not guarantee returns. Hence, it is better to consult a financial advisor before investing.