Best corporate bond mutual funds to invest in 2019

Mutual fund managers and advisors have been asking debt mutual fund investors to stick to corporate bond funds .

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Here's the monthly update on our recommended corporate bond schemes. The good news is that there is no change in our recommendations this month. Mutual fund managers and advisors have been asking debt mutual fund investors to stick to corporate bond funds and credit risk funds apart from short duration schemes to navigate the uncertain times in the debt market. The advice still remains the same. These schemes are less volatile than long-term debt schemes and gilt schemes because of their sensitivity to interest rate changes, say mutual fund advisors.

According to advisors, if you are looking for a debt mutual funds scheme to invest for a medium term of three to five years and don't want to take too much of a risk on your investment, you may think of investing in corporate bond funds.

As per new Sebi categorisation, corporate bond funds must invest at least 80 per cent of their corpus in the highest-rated corporate bonds. That means these schemes would invest most of their corpus in corporate bonds that is rated AAA. That makes them a relatively less riskier than credit risk funds. However, since we are dealing with companies, there is always a bit of risk.


Sure, highest-rated companies are much more reliable than their counterparts rated lower. However, a higher rating doesn't mean that their 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.

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. The corporate bond mutual fund category has offered around 6.09 per cent in the last one year, 7.16 per cent in the last three years and 7.86 per cent in the last five years.

Here are our five recommended corporate bond funds.
Kotak Corporate Bond Fund
ICICI Prudential Corporate Bond Fund
Reliance Prime Debt Fund
Aditya Birla Sun Life Corporate Bond Fund
HDFC Corporate Bond Fund

Methodology:
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ET.com Mutual Funds 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
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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.
Asset size: For Debt funds, the threshold asset size is Rs 50 crore
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