HSBC Corporate Bond Fund invests in AA+ bonds – Is this low risk fund?

HSBC MF launches Corporate Bond Fund - NFO ReviewHSBC MF has launched Corporate Bond Fund that has opened for subscription on September 14, 2020. Corporate bond funds generally invest in corporate bonds. These funds provide higher returns compared to bank FD, however these are risky. Post Franklin debt mutual funds fiasco, investors are concerned about investing in debt mutual funds. In this situation, should you invest in such corporate bond funds? In this article we would provide HSBC Corporate Bond Fund NFO issue details and various risk factors associated with such funds.

Also read: Sundaram MF launches Bluechip fund – Should you invest?

Issue details of HSBC Corporate Bond Fund (NFO)

This is an open-ended equity mutual fund scheme. Here are the NFO issue details.

Scheme Opens 14-Sep-20
Scheme Closes 28-Sep-20
Scheme Plans Direct and  Regular
Growth and Dividend
Minimum investment (Lumpsump) Rs 5,000
Minimum investment (SIP) Rs 500 / 12 months
NAV of the fund Rs 10 during NFO period
Entry Load
Exit Load Nil
Risk Moderate
Max Total expense Ratio (TER) 2.00%
Benchmark NIFTY Corporate Bond Index

Download HSBC Corporate Bond Fund KIM

What is the investment objective of this MF scheme?

To seek to generate reasonable income and provide risk-adjusted returns by investing primarily in AA+ and above rated corporate debt securities.

There is no assurance or guarantee that the investment objective of the scheme will be realized.

Who is eligible to invest in this mutual fund scheme?

The following can invest in this scheme.

1) Indian resident adult individuals, either singly or jointly.

2) Minors through Parents/Lawful Guardian.

3) Hindu Undivided Family (HUF) through its Karta.

4) Partnership Firms in the name of any one of the partners.

5) Proprietorship in the name of the sole proprietor.

6) Companies, Body Corporate, Societies, Association of Persons, Body of Individuals, Clubs and Public Sector Undertakings registered in India if authorized and permitted to invest under applicable laws and regulations.

7) Banks

8) Non-Resident Indians (NRIs) / Persons of Indian Origin (PIO) on full repatriation basis or on non-repatriation basis;

Complete list of eligible participants who can invest can be checked in the NFO prospectus.

Who is the Fund Manager of HSBC Corporate Bond Fund?

Mr.Ritesh Jain is the fund manager for this mutual fund scheme.

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What is the benchmark for this scheme?

The benchmark for this scheme is NIFTY Corporate Bond Index.

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What is the allocation pattern in this mutual fund?

This fund investment pattern is as follows:

1) It invests 80% to 100% of investment in corporate bonds that have AA+ rating and above. The risk profile in this segment is low to medium.

2) It invests 0% to 20% of investment in corporate bonds that have AA rating and below. The risk profile in this segment is medium to high.

3) It would invest 0% to 20% in Money market instruments including cash and cash equivalents and debt instruments issued by central and state governments. The risk profile in this segment is low.

4) It would invest 0% to 20% in Units of REITs and InVITs. The risk profile in this segment is medium to high.

Why to invest in the HSBC Corporate Bond Fund?

Here are a few reasons to invest in such bond funds.

1) Corporate bond benchmark has delivered 7.8% annualized rolling returns in the last 3 years. Corporate bond funds can provide risk adjusted returns if invested for 3 to 5 years tenure.

2) This corporate bond fund would invest majorly in AA+ securities which are relatively safe investment options as they have high credit quality.

3) It invests up to 20% in government securities which are safer considering corporate bond funds.

4) Since it invests majorly in AA+ securities, these would have a low credit risk.

5) These bonds are tax efficient compared to fixed deposits for those in the 20% and 30% income tax brackets with investment horizons exceeding 3 years.

Some key risk factors you should consider before you invest in such funds

One should consider some of these risk factors / negative factors before investing.

1) These debt funds invests up to 20% in AA rated and below rated bonds. This portion of the investment portfolio is high risk.

2) It invests in REITs and InvITs which are generally high risk.

3) Though it invests in AA+ rated bonds, such credit ratings can always be downgraded by credit rating agencies. If there is downgrade of such ratings, the bond values would fall.

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4) Read the scheme related documents carefully before investing in such schemes.

How did the benchmark performed?

Now let us look at the performance of the benchmark i.e. NIFTY Corporate Bond Index.

HBSC Corporate Bond Fund NFO - Performance of benchmark

Performance of Corporate Bond Funds

Let us check the performance of existing corporate bond funds.

Fund Name 6 months Annualised Returns
1 Year 3 Year 5 Year
HDFC Corporate Bond Fund 5.8% 10.5% 8.6% 9.0%
Aditya Birla Sun Life Corporate Bond Fund 6.4% 11.0% 8.7% 9.0%
Sundaram Corporate Bond Fund 5.9% 10.8% 7.9% 8.8%
Kotak Corporate Bond Fund 5.1% 9.2% 8.4% 8.6%
L&T Triple Ace Bond Fund 5.3% 11.6% 9.2% 8.6%

Also Read: SEBI new rule on multicap funds asset allocation – Should investors exit multicap funds?

Should you invest in HSBC Corporate Bond Fund NFO?

HSBC Corporate Bond Fund majorly invests AA+ rated corporate bonds. However, it invests up to 20% in AA and below ratings bonds. It also invests up to 20% in REITs and InvITs which are high risk. This corporate bond fund is for moderate to high risk investors. If you fall in this category and understand the risks involved, you can invest in such corporate bond funds for 3 to 5 years tenure. Alternatively, you can invest in existing corporate bond funds instead of testing such new funds. Low risk investors should stay away from such schemes.

HSBC Corporate Bond Fund NFO issue details (Video version). You can subscribe to Myinvestmentideas Youtube channel here

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Suresh KP

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