There are rating agency such as CRISIL, CARE and ICRA which access the credit risk and gives rating to each instrument or fund based on the financial strength of their issuer.

Rating agency apply '+' (plus) or '-' (minus) signs for ratings from AA to C and A1 to A4 to reflect comparative standing within the category.

As per the SEBI mandate, they need to invest at least 80% of their assets in AA+ and above rated corporate bonds and rest 20% can be invested in other debt and money market instruments including REITS.

Recommended investment tenure of Corporate Bond Funds is 3+ years.

Corporate Bond Funds usually have Moderate risk profile. As these funds are required to take atleast 80% of their exposure in top rated corporate bonds, they are high on safety as compared with most other debt fund categories.

• Investors who want stable returns and want to avoid credit risks.
• Investors who have moderate risk profiles.
• Investors who have at least 2 - 3 years investment tenures
• If you can remain invested for 3 plus years, you can enjoy benefits of long-term capital gains taxation

• Bank Fixed Deposit rates are on a declining trend. 3 to 5 year FD rates are in the range of 5.3 - 5.5% for leading public and private sector banks (source: bankbazaar.com). Interest rates may go down further in the future (data as on 31st Jan21).
• Debt funds are subject to two risks - interest rate risk and credit risk. Interest rate risk is temporary, if your investment tenure matches with the duration of an accrual based fund. However, credit risk can cause a permanent loss.
• Debt funds enjoy considerable taxation advantage over traditional fixed income investments, especially for investors in the higher tax brackets. Traditional fixed income investments like Bank FDs are taxed as per the income tax slab rate of the investor. Long term capital gains (investment tenure of 3 years or longer) in debt funds are taxed at 20% after allowing for indexation benefits. Indexation benefit can reduce your tax obligation considerably.

• Corporate Bond Funds are subject to market risk. There is no guarantee of capital safety and assurance of returns.
• These funds can take duration calls. In case of adverse interest rate movements, fund NAVs can be volatile or even negative.
• Though Corporate Bond Funds generally have low credit risks, credit downgrades can cause permanent reduction in fund’s NAV. One must always invest in debt funds which have high credit quality.

• One should check the duration of the scheme portfolio and ensure that their investment tenure matches with the duration profile of the fund to avoid / limit interest rate risk.
• One should check the rest 20% portfolio (Apart from the 80% invested in AA+ and above rated corporate bonds) for any credit risk.
• Low expense ratio.
• Exit load.
• Track record of the fund manager
• Track record of the Asset Management Company in managing Fixed Income Mutual Fund Schemes.

The investment objective of the scheme is to provide income and capital appreciation by investing predominantly in AA+ and above rated corporate bonds.

The Scheme does not guarantee or assure any returns.

The Fund will invest minimum of 80% in AA+ and above rated corporate bonds along with some exposure to Government Securities and Treasury bills and other money market instruments.

• The fund endeavours to maintain a Macaulay duration of 2 to 5 years while investment can be done across the yield curve. This will give flexibility to the fund manager to tap opportunities across curve along with price appreciation if interest rate changes are favourable
• Lower credit risk / higher safety: Fund will have higher allocation in AAA/AA+ rated corporate bonds and government securities.
• High Liquidity: Fund invests in investing in G-sec and AAA/AA+ papers which have higher liquidity compared to other debt papers.
• Moderate Interest Rate Risk: The fund generally maintains duration of 2 to 5 years with flexibility to invest across yield curve.
• Potential of higher returns through active management: Active management based on credit spread and interest rate outlook.
• Mirae Asset as a fund house has a robust credit risk appraisal and management process.
• Fund manager of the scheme is highly experienced and has strong long term track record.

• The Scheme has Regular Plan and Direct Plan with a common portfolio and separate NAVs. Investors should indicate the Plan for which the subscription is made by indicating the choice in the application form. Each of the above Regular and Direct Plan under the scheme will have the following Options - 1) Growth Option and 2) Dividend Option. Under the dividend Option, there will be 2 sub options -: 1) Dividend Payout and 2) Dividend Reinvestment.
• On payment of dividend, the NAV of the units under Dividend option will fall to the extent of the dividend payout and applicable statutory levies, if any. It must be distinctly understood that the actual declaration of dividend and frequency thereof is at the sole discretion of Board of Directors of the Trustee Company.

The AMCs are required to disclose full portfolios of each scheme on a monthly basis on their website and also in their monthly fact sheet. The scheme portfolio shows investment made in each security i.e. equity, equity related instruments and other instruments as per the scheme mandate, along with the respective quantities, market value and % weightage to the NAV.

• Short term capital gains (if the units are sold within 3 years) in debt mutual funds are taxed as per applicable tax rate of the investor.
• Long term capital gains (if the units are held for more than 3 years) of debt funds are taxed at 20% with indexation.
• Indexation benefits reduce the tax obligation considerably compared to investments in bank FDs and many small savings schemes. The first major advantage of debt mutual funds over bank FDs is regarding taxation during the tenure of the investment. In bank FDs, interest whether paid out or accrued in your FD account is taxable. The bank will deduct 10% TDS on the interest paid on FD.

• To calculate capital gains with indexation in debt funds, you should index your purchase cost by multiplying the purchase cost with the ratio of the cost of inflation index of the year of sale and cost of inflation index of the year of purchase, and then subtract the indexed purchasing cost from sales value. Let us see an example -