HDFC Corporate Bond Fund

HDFC Corporate Bond Fund is an open-ended debt mutual fund scheme offered by the HDFC Asset Management Company. As the name suggests, the fund investment predominates in AA+ rated Corporate Bonds. The primary objective of this scheme is to generate income and capital appreciation through investment in these bonds, which ideally suits the investor looking for income over short and medium-term horizons up to three years or fixed income allocation for a longer portfolio.

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The allocation pattern in the HDFC Corporate Bond Fund is designed to achieve this goal is prescribed as 80% to 100% in AA+ rated Corporate Bonds, including securitized debt, up to 20% In Government Securities and Money Market Instruments, and 10% in units issued by REITs and InVITs.  Juxtaposed with this, the actual Asset and Portfolio Allocation as of 30 April 2021 is 97.4% in Debt Instruments and 2.61% in others. It satisfies the primary objective to earn moderate returns that are consistently higher than banks and enough to beat the inflationary losses. 

The HDFC Corporate Bond Fund’s top holdings on 30 April 2020 are GOI 13.85%, LIC Housing Finance 7.81%, REC Ltd, 7.73%, Reliance Industries 7.63%, SBI 6.85%, and PFC Ltd. 5.69% of the NAV. 

The HDFC Corporate Bond Fund offers the following investment plans and options:

  • Regular Plan:
  • Growth Option.
  • Dividend Option (IDCW).
  • Direct Plan:
  • Growth Option.
  • Dividend Option (IDCW).

**IDCW stands for Income Distribution cum Capital Withdrawal offering payout and reinvestment facility.

**Direct Plan denotes Units purchased directly from the fund and not through distributors. 

Fund Facts

Parameters  Particulars
Fund Name  HDFC Corporate Bond Fund (Regular and Direct)
Fund House  HDFC Asset Management Company
Launch Date 29 June 2010
Scheme Type  Open-ended debt scheme
AUM  Rs.26669.56 cr as of 30 April 2021
Benchmark Nifty Corporate Bond Index
Application Investment  Minimum: Rs.5000 Additional: Any amount in multiples of Rs.1000 after that.
Lock-In  Absent
Entry Load  NA 
Exit Load Nil
Return Performance  Above Average
Fund Consistency  Above Average
Risk Level  Moderate 

Investment Objective

The primary objective of the HDFC Corporate Bond Fund is to generate income and capital appreciation through significant investments in the Corporate Bonds that have been rated AA+ or above for a steady return. A judicious fund allocation pattern is adopted for a diverse portfolio towards this end. Thus, investments are predominantly made in debt, including securitized and other instruments. 

Besides, funds are also allocated to other Mutual Fund Schemes, hybrid securities like REIT and InvITs to diversify in compliance with SEBI regulations amended from time to time. While every effort is made to achieve fund objectives, the sponsor does not guarantee the outcome, and as such, no steady return is offered. 

Fund Summary

HDFC Corporate Bond Fund Regular Plan-Growth Option

  • Risk Level: Moderate
  • NAV: Rs.25.2265 as of 20 May 2021
  • Expense Ratio: 0.61 as of 30 April 2021
  • Fund Started On: 29 June 2010

HDFC Corporate Bond Fund Direct Plan-Growth Option

  • Risk Level: Moderate
  • NAV: Rs.25.4958 as of 20 May 2021 
  • Expense Ratio: 0.30 as of 30 April 2021
  • Fund Started On: 1 January 2013

Fund Returns Summary

  1. HDFC Corporate Bond Fund Regular Plan-Growth Option (as of 31 March 2021)

    Period  Return % Benchmark Returns %
    1 year 8.79 9.90
    3 years 8.85 8.68
    5 years  8.61 8.49
    Since Inception 8.86 8.87
  2. HDFC Corporate Bond Fund Direct Plan-Growth Option (as of 31 March 2021)

    Period  Return % Benchmark Returns %
    1 year 9.10 9.90
    3 years 9.04 8.68
    5 years  8.77 8.49
    Since Inception 8.91 8.79
    .

*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply

Cumulative Pros and Cons 

Pros  Cons
The Expense Ratio is lower at 0.3%  The Asset Under Management (AUM), having reached more than Rs.20000 cr, results in the returns going slower after a particular sum.
The one-year returns are higher than the category average returns. 
The three-year returns are higher than the category average returns.
The five-year returns are higher than the category average returns.
The exit load is nil. 

Benefits of HDFC Corporate Bond

The HDFC Corporate Bond Fund comes with a host of benefits for the investor looking for a regular income in the short horizon of up to three years. The fund is attributed with an overall moderate risk profile helping risk-averse individuals to invest in the fund freely. Some of the critical benefits are listed below:

  • Steady Income: HDFC Corporate Bond Fund allocates assets mostly in debt instruments, which though not high yielding, provide steady, consistent returns found to better bank deposits and absorb inflationary factors.
  • Liquidity: HDFC Corporate Bond Fund is an open-ended scheme that permits the continuous purchase of units at the current NAV providing investors with investment liquidity. 
  • Proven Track Record: HDFC Corporate Bond Fund has an asset allocation of over 97% in debt instruments at the end of April 2021. It signifies guaranteed returns and a great alternative to bank deposits. The investment returns of 8.90% since its launch bear testimony to its consistent performance. 
  • Balanced Investment Strategy: The primary investment focus of the HDFC Corporate Bond Fund’s remaining debt instruments does not preclude diversification with moderate investment in market instruments like equities. It helps in balancing out the losses, if any, to protect the final yield. 
  • Convenience: HDFC Corporate Bond Fund investor has flexible options of purchasing the units paying a lump sum amount or choosing the easier SIP route. The last option eminently suits the small investor. The fund operates on a digital platform helping the investor to purchase or redeem at will seamlessly. 

*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply

Fund House Details

The HDFC Corporate Bond Fund is sponsored by the HDFC Asset Management Company, a subsidiary of the HDFC Group. It was founded in 1999 as a joint venture between the Housing Finance Development Corporation Limited (HDFC) and Standard Life Investments Limited (SLI). Today HDFC AMC is among the most profitable fund houses managing Assets Under Management (AUM) valued at Rs.4.1 trillion. It became a publicly listed company through the IPO route in August 2018. The public holds 26% of the stake in the AMC, which is the investment manager to the HDFC Mutual Fund.

The HDFC Asset Management Company has a significant Indian presence operating in 200 cities through 224 branches. It manages a vast retail and institutional customer base with 9.1 million live accounts through an empanelled 65 thousand distributor network, including banks. The Fund House offers a diverse suite of investment products across different asset classes. Today it is by far the most dominating market leader in equity-oriented funds. Retail investors have emerged the AMC’s mainstay with a track record of 25 years, helping the AMC book the largest market share in individual investor assets. 

The primary stakeholders of the Fund House are:

  • HDFC Limited: It is a part of the HDFC Group, a financial conglomerate with interests in housing finance, banking, life, and non-life insurance, real estate, and education finance. It holds a 52.8% stake in the HDFC AMC.
  • Standard Life Investments Limited: It is a subsidiary of Standard Life Aberdeen Group PLC is UK based and is one of the largest asset managers in Europe. It has a global presence in over 40 locations, including the Americas, Asia, the middle-east, and Australia. It holds a 26.9% stake in the HDFC AMC.  

Who Should Invest in HDFC Corporate Bond?

The HDFC Corporate Bond Fund has a moderate risk profile with a diversified portfolio comprising predominantly debt and securitized instruments. While the yields on investment are enough to score over bank deposits or counter related inflation erosion, it is immune to market volatility providing a steady, stable income. Thus, investors seeking regular income over the short and medium-term horizon are the primary patrons of HDFC Corporate Bond Fund. It is essential to check out who can invest in the fund after understanding the investor profile. 

An indicative list is described below: 

  • Resident adult individuals either singly or jointly
  • Minor as the sole investor through a natural guardian like father and mother, or a court-appointed legal guardian
  • Karta on behalf of a HUF
  • Partnership firms and Limited Liability Partnerships
  • Corporate Houses, Companies, Public Sector Undertakings, Association of person or individuals
  • Banks and Financial Institutions 
  • SEBI registered Mutual Funds and Investment Funds
  • Religious and Charitable Trusts
  • NRIs, PIO, and OICs on repatriation or non-repatriation basis, subject to RBI regulations
  • SEBI registered Foreign Portfolio Investors
  • The armed forces and paramilitary organizations
  • Other government bodies and research organizations
  • Other Mutual Fund Schemes of HDFC AMC
  • Others as approved by the HDFC AMC 

Wrapping It Up

The HDFC Corporate Bond Fund restricts its primary asset allocation in high-grade AA+ or above rated Corporate Bonds, which are essentially securitized debt instruments. The overall moderate risk profile matches investors pursuing regular steady income in the short and medium-term horizons. 

The fund house endeavours to create a diverse portfolio within the adopted investment strategy. The fluctuating market instrument route is sometimes explored to balance out the losses if there are any. The investment, however, supports long-term objectives if the investor is satisfied with fixed income. 

The hefty Asset Under Management in the HDFC Corporate Bond Fund, nearing Rs.27000 crore, bears ample testimony to its resilience and impressive track record providing consistent yields. The open-ended scheme is another attraction for its liquidity. However, the investor must understand the prospect of suffering losses in the investment is low, but the Fund House does not guarantee returns.

FAQ's

  • Q: What are the tax implications for capital gains in the HDFC Corporate Bond Fund?

    Ans: The earnings classified as capital gains are subject to tax applications in the following ways:
    • If the HDFC Corporate Bond Fund units are sold three years from the purchase date, the gains are taxed at a flat rate of 20% after inflation indexation adjustment.
    • The entire gain accrued from the sale of the HDFC Corporate Bond Fund units within three years for the purchase date is added to the investor’s income tax computation at the applicable slab rate.
    • If the units are not sold and held by the investor and are held continuously, there is no tax liability.
  • Q: What is meant by the NAV and the current value of the HDFC Corporate Bond Fund unit?

    Ans: NAV is the acronym for Net Asset Value, which denotes the Mutual fund’s unit price. It is calculated daily by end-of-day holdings value in the fund, reduced by subtracting the expenses and dividing the arrived value by the number of units issued to date. The NAV of the HDFC Corporate Bond Fund unit as of 20 May 2021 is Rs.25.2265.
  • Q: What is the Expense Ratio and its current value in the HDFC Corporate Bond Fund?

    Ans: The Expense Ratio is defined as the annual charges the investor pays the Fund House for managing fund investments. It is a percentage derived from the AUM and generated returns from the fund. A low Expense Ratio is attractive as the investor stands to gain better yields. The present applicable Expense Ratio in the HDFC Corporate Bond Fund direct plan is 0.3%.
  • Q: What is the significance of Asset Under Management (AUM) of the HDFC Corporate Bond Fund?

    Ans: AUM is broadly described as the total value of unit assets held by the Mutual Fund scheme. The value changes every day with the fresh NAV arrived at the close of business. Though the daily NAV determines the purchases and sales, it is updated monthly per SEBI norms. The AUM acts as an indicator of the fund’s popularity among investors. The current AUM of the HDFC Corporate Bond Fund stands at Rs.26670 crore approximately as of 30 April 2021. It indicates that the investors have reposed faith in the fund and a lot of money is tied up. However, it should not be considered as the only criterion for selecting a suitable fund. Many funds with lower AUM have performed well regardless.
  • Q: What is the quality rating of the borrowers to whom the HDFC Corporate Bond Fund lends?

    Ans: The invested instruments held by them determine the borrower’s credit rating. The HDFC Corporate Bond Fund asset allocation quality rating is described below:
    • 82.15% in AAA. 
    • 15.25% in SOV.
    • 2.61% in Cash and Call Money.
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