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Corporate bond funds (CBFs) attracted ₹11,983 crore in net inflows in May, the highest among debt fund categories, according to data from the Association of Mutual Funds in India (Amfi).

- SARBAJEET K SEN

These funds invest in corporate bonds rated AAA and AA+, and hence carry low credit risk.

"The surge in investor interest in CBFs, leading to high inflows in May, is probably driven by relatively attractive yields compared to government securities, making high-rated bonds appealing. Ample system liquidity from the Reserve Bank of India's (RBI's) operations has also encouraged investment," says Devang Shah, head - fixed income, Axis Mutual Fund.

Low default risk

CBFs are regarded as low-risk investments. According to Crisil Ratings' Default and Rating Transition Study (covering FY14-24), no AAA-rated issuer has defaulted over any three-year period. The likelihood of a AAA-rated bond avoiding a downgrade over the next one year stands at 98.83 per cent.

"CBFs invest a minimum 80 per cent in AA+ and above-rated corporate bonds. They offer lucrative yields over government securities with minimal credit risk," says Sandeep Bagla, chief executive officer, TRUST Mutual Fund.

Competitive performance