Month: June 2021

What are corporate bond funds?

Corporate bond funds, also known as non-convertible debentures, are debt funds that invest at least 80% of their capital in corporations with the best credit ratings. The credit ratings offered by rating organisations such as CRISIL or Value Research can be used to assess the safety of corporate bonds. AAA-rated companies are the safest and have the lowest credit risk compared to AA-rated companies. Because Corporate Bond Funds invest primarily in high-rated instruments, their credit risk is lower than that of other debt funds. Corporate Bond Funds have consistently outperformed other debt categories even amid the current financial market turmoil. In the previous year, corporate bond funds have provided an average return of nearly 7%. Their three and five-year average returns are over 8% and 9%, respectively. Which is unquestionably better than the interest rates on FDs offered by major banks like SBI, HDFC. Axis and ICICI.

4 Best Corporate Bond Funds In Terms of Returns

Because Corporate Bond Funds are well known for medium duration investment tools, you need to invest for at least two to three years to earn greater returns than bank FDs. The best four corporate bond funds to invest in 2021 are listed below.

Aditya Birla Sun Life Corporate Bond Fund

The fund presently has Rs 23,971 crore in asset under management (AUM) and a NAV of Rs 87.13 as of June 4, 2021. National Bank For Agriculture & Rural Development, Rural Electrification Corp. Ltd., Housing Development Finance Corp. Ltd., HDB Financial Services Ltd., Madhya Pradesh State are among the fund’s top holdings. The Aditya Birla Sun Life Corporate Bond Fund’s direct plan has an expense ratio of 0.46 per cent. The Aditya Birla Sun Life Corporate Bond Fund has a Value Research rating of 5 stars, indicating that it has the potential to outperform the returns of bank FDs.

ICICI Prudential Corporate Bond Fund

ICICI Prudential Corporate Bond Fund Direct Plan Growth is a debt mutual fund scheme of ICICI Prudential Mutual Fund. The fund presently has Rs 19,706 crore in asset under management (AUM) and a NAV of Rs 23.77 as of June 4, 2021. GOI, National Bank For Agriculture & Rural Development, Housing Development Finance Corp. Ltd., Rural Electrification Corp. Ltd., and LIC Housing Finance Ltd. are among the fund’s top holdings. The fund has an expense ratio of 0.27%. Value Research has given this fund a five-star rating, indicating that it can prevent losses and provide good returns during market downturns.

Kotak Corporate Bond Fund

Kotak Corporate Bond Fund Standard Growth is Kotak Mahindra Mutual Fund’s debt mutual fund product. The fund presently has Rs 9,310 crore in assets under management (AUM) and a NAV of Rs 2934.42 as of June 4, 2021. State Bank of India, Rural Electrification Corp. Ltd., Reserve Bank of India, Tata Capital Financial Services Ltd., and Tamilnadu State are among the fund’s top holdings. The fund has a 0.66 per cent cost ratio and a 4-star rating from Value Research. Even if the fund’s rating is satisfactory, the fund’s three-year, five-year, and ten-year returns are all higher than the category average returns.

Axis Corporate Debt Fund

Axis Corporate Debt Fund Direct Growth is an Axis Mutual Fund’s debt scheme. As of June 4, 2021, the fund has Rs 4,089 crore in assets under management (AUM) and a NAV of Rs 13.75. National Bank For Agriculture & Rural Development, State Bank of India, Motherson Sumi Systems Ltd., India Infradebt Ltd., and Tata Capital Ltd. are among the fund’s top holdings. Value Research has given the fund a three-star rating and the expense ratio of this fund is 0.24%. This suggests that the fund has delivered respectable returns, but the stability with which it has done so is questionable. You can invest in this fund if you don’t mind being dissatisfied amid periods of poor returns.

Should you invest?

Individuals seeking a low-risk, short-term investment option can simply pick corporate bond funds with a shorter maturity period. Corporate debt funds have a lower risk profile than equity funds, and they offer high liquidity at the time of emergency. Corporate bond funds provide much better returns than other debt securities. Corporate debt instruments may anticipate average yields of 8-10 per cent, whilst bank FDs will currently only have an average return of 5 to 5.5 per cent. Long-term capital gains tax of 20% with indexation is available if you invest in Corporate Bond Funds for more than three years. Because FD returns are taxed according to income tax slabs, corporate bonds are a good adjunct to FDs for investors in the higher tax bracket. As an outcome, you can employ Corporate Bond Funds in your debt portfolio because these funds may deliver consistent returns with little risk exposure and substantial post-tax returns.

Disclaimer

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Investing in stocks that offer Dividends

Dividend-paying stocks are advantageous to shareholders. This is due to the fact that investors can get a regular income from their equity investment while continuing to retain the shares in order to profit from additional share price appreciation. Dividends are money in your pocket as the stock market rises and falls. Check upcoming dividends to watch out for in June 2021.

Companies that have a track record of paying regular dividends year after year tend to be better managed because they are conscious that they must provide cash to their shareholders four times a year. Companies with a lengthy history of paying dividends are often large-cap, well-established companies.

Investing in stocks without Dividends

Why would anyone want to put their money into a business that doesn’t pay out dividends? In reality, there are a number of advantages to investing in equities that do not pay dividends. Companies that do not pay dividends on their stock often reinvest the money that would have gone to dividend payments towards the company’s expansion and overall growth. This suggests that their stock prices are likely to rise in value over time. When the investor’s shares are ready to be sold. Dividends are paid on particular dates, one should know different dates related to the dividends.

Companies that don’t pay dividends may use the money from future dividend payments to buy back stock on the open market, which is known as a “share buyback.” If fewer shares are available on the open market, the company’s earnings per share (EPS) should potentially rise.

Pros of investing in Dividend Stocks

Passive Dividend Income Stream

Dividend stocks are stocks that provide cash dividends to their shareholders. It’s one of the ways dividend investors profit. Most investors like dividend stocks because they can give a consistent stream of income with little or no effort, similar to interest from a bank account but with a higher potential for profit.

Reinvestment of Dividend

When you utilize your dividend profits to buy more shares of a company’s stock, you’ll make more money because each share you buy generates its own regular dividend distribution. Dividends from stocks can be used to acquire other equities, allowing you to realize the benefits of dividend reinvestment. If you wish to diversify your portfolio, you can utilize that money to invest in alternative investment alternatives such as bonds, gold, and so on.

Advantages of investing in Dividend Stocks

Dividends protect against bad markets

Many of your favourite stocks’ share prices may decline during a bear market or a correction. As a result, you might not be able to profit from stock capital appreciation. Even if your portfolio is down, you can still get a nice dividend income provided you have the correct dividend stocks in your portfolio. These 5 Dividend Stocks provided capital appreciation higher than Nifty.

Dividends are low risk

Dividend stocks are typically issued by significant companies that operate in a certain economy. Such businesses already have a substantial market presence, which helps to mitigate the risk component. Due to a largely retained profit foundation, unfavorable market swings have little impact on the productive potential of such businesses.

Dividends provide double income

If your invested stock increases by 30% in the next three years and you earn a 3% dividend return from the same investment, the overall earnings are far more than the capital appreciation alone. When compared to investing in companies that do not pay dividends, you can make twice as much money here.

Cons of dividend stock investing

Capital gains

Dividend stocks do not result in capital gains for investors because the unit stock values of such large-cap firms do not fluctuate much with stock market volatility. As a result, such shares are not ideal for short-term investment objectives, as price fluctuations between such time periods are minor.

Dividend stocks can expensive

Large-cap enterprises, such as industry giants and global enterprises, are the most common issuers of shares connected with regular dividend payouts. As a result, the securities issued have a high value. Furthermore, because most people like to hold on to such shares after purchasing them, finding a buyer in the market may be difficult.

Disadvantages of dividend stock investing

Dividend Cuts

The worst-case scenario is this, Dividends are not a contractual duty, and a firm may choose to reduce dividends at any time. Furthermore, when a corporation reduces dividends, the stock price drops dramatically because the public perceives it as a negative sign. As a result, dividend investors may be in for a double whammy.

High dividend payout risks

A high dividend distribution indicates that the company is paying out a significant amount of its income to its shareholders. For instance, if a corporation makes a profit of Rs 100 crores in a financial year and pays out Rs 85 crores in dividends, the dividend payout ratio is 85%.

Who should consider investing in Dividend Stocks?

Investing in dividends is not a strategy that investors should take lightly. This method necessitates a significant amount of time and research, and it carries the same hazards as other types of investment. However, understanding the benefits and drawbacks of dividend investing is a solid starting point for determining whether or not this popular and rapidly increasing style of investing is suited for you. Equity shares that pay out large dividends on a regular basis are appropriate for investors searching for long-term investments with a high level of corpus security. Such shares might be included in the portfolios of novice investors looking for other ways to achieve larger returns through the stock market. Dividend stocks are generally less hazardous than non-dividend stocks, but before attempting to use them as part of your investment portfolio strategy, you should familiarise yourself with both the benefits and drawbacks of dividend investing.