JM Corporate Bond Fund invests in AA+ Rated Bonds – Should you invest in this NFO?
JM Financial Mutual Funds has launched Corporate Bond Fund that opened for subscription now. Corporate bond funds generally invest in corporate debt instruments. These funds provide higher returns compared to bank FD, however, comes with risk. These bond funds have generated 4.5% to 7.7% returns in 3 to 5 years time frame. In this article we would provide JM Corporate Bond Fund NFO issue details and various risk factors associated with such funds.
Also Read : UTI Launches Long Duration Fund – New Fund Offer
JM Corporate Bond Fund NFO – Issue details
Here are the NFO details.
|Scheme reopens for continuous purchase/sale||Within 5 working days|
|Minimum Lumpsum||Rs 5,000|
|Minimum SIP||Rs 500 for 12 months|
|NAV of the fund||Rs 10 during NFO period|
|Benchmark||CRISIL Corporate Bond Fund BIII Index|
|Fund Manager||Mr. Gurvinder Singh Wasan
Ms. Shalini Tibrewala
What is the investment objective of this MF scheme?
To generate income through investing predominantly in AA+ and above rated corporate bonds while maintaining the optimum balance of yield, safety and liquidity.
There is no assurance or guarantee that the investment objective of the scheme will be realized.
What is the allocation pattern in this mutual fund?
This fund investment pattern is as follows:
|Type of instruments||Min %||Max %||Risk Profile|
|Corporate Bonds (AA+ and above
|80%||100%||Low to Medium|
|Government securities and Money
Market Instruments (including units
of mutual fund schemes)
|Units issued by REITs and InvITs||0%||10%||Medium to High|
Performance of existing Corporate Bond Funds
Now let us look at the performance of the existing corporate bond mutual fund schemes.
|Scheme Name||1 Yr||3 Yrs||5 Yrs|
|HSBC Corporate Bond Fund||2.9%||5.4%||7.7%|
|Aditya Birla Sun Life Corporate Bond Fund||4.7%||6.4%||7.5%|
|Sundaram Corporate Bond Fund||4.4%||5.8%||7.4%|
|ICICI Prudential Corporate Bond Fund||5.7%||6.4%||7.4%|
|HDFC Corporate Bond Fund||4.1%||6.1%||7.4%|
|Axis Corporate Debt Fund||4.7%||6.5%||7.3%|
|Franklin India Corporate Debt Fund||4.1%||5.1%||7.1%|
|Kotak Corporate Bond Fund – Standard Plan||4.3%||5.7%||7.1%|
|Nippon India Corporate Bond Fund||4.8%||6.1%||7.0%|
|Invesco India Corporate Bond Fund||3.5%||5.4%||7.0%|
|PGIM India Corporate Bond Fund||4.2%||5.9%||6.9%|
|IDFC Corporate Bond Fund||3.3%||5.9%||6.9%|
|Canara Robeco Corporate Bond Fund||3.8%||5.4%||6.8%|
|Baroda BNP Paribas Corporate Bond Fund||2.4%||4.6%||4.5%|
Why to invest in JM Corporate Bond Fund NFO?
Here are a few reasons to invest in such corporate bond funds.
1) This corporate bond fund invests 80%+ in AA rated securities and above. I always keep indicating in my articles that investors should go for A rated bonds or FDs which are relatively low risk (as they have high credit quality) compared to low rated instruments (below A rated bonds).
2) This bond fund aims to invest in bonds which have relatively high interest rates and moderate credit risk (B-III).
3) Corporate bond funds generate high returns compared to government bonds, however, comes with risk. If you observe, corporate bonds historically generated 8% to 10% annualized returns earlier. However, post covid and fall in interest rates, the returns from such bonds also reduced. Since the interest rates are up and back to pre covid level, one can expect higher returns from these corporate bond funds for coming years.
4) This fund does not have restrictions on Macaulay duration. Means it can invest in debt instruments which are in short term or medium term or long term.
5) Investing for more than 3 years provides indexation benefits.
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) It invests in REITs and InvITs up to 10% which are high risk.
2) Though it invests in AA+ rated bonds, such credit ratings can always be downgraded by credit rating agencies without any advance intimation. If there is downgrade of such credit ratings, the bond values would fall and NAV would fall.
3) This fund invests up to 20% in government securities where such instruments could be highly volatile in the short term.
4) Read the scheme related documents carefully before investing in such schemes.
Also Read: 5 Debt Funds with Highest SIP Returns in last 10 years
Should you invest in JM Corporate Bond Fund NFO?
JM Corporate Bond Fund invests predominantly in AA+ rated corporate bonds. Such corporate funds have historically generated 8% to 10% annualized returns in the short term to medium term (pre covid times).
On the other side, it invests up to 10% in REITs and InvITs which are high risk. If there is downgrade of credit ratings of the company where such scheme invests, the bond values would fall.
Moderate to high risk investors can invest in such bonds for 3 to 5 years tenure.
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Since markets are at low and possibility of another 4/5% dip, its right time to invest in lumpsum SWP.
Pls suggest 2/3 good SWP funds to invest lumpsum now which allows redemption of 30K per month withdrawal at good return for long term, and how much will one need to invest lumpsum in which fund to generate 30K withdrawal per month?
Also awaiting your writeup on best fixed income instruments that provides 7%+ returns for 5/10 years
No one can predict markets. What would you do if markets fall by another 8% to 10%? What I am doing currently is invested in liquid fund / short term fund and doing STP for next 6-9 months. Assume markets go up from now, my current investments would fetch good returns. If it falls, then my STP’s would get benefitted heavily in coming years.
If markets falls will invest more in lumpsum. Won’t deploy all at same time.
Since this is a new fund, therefore, it would invest afresh in the +AA rated securities which would come into the market from now onwards. Does it mean that this fund will enjoy the benefits of rising interest rates “fully” as compared with existing similar funds which would have some investment in lower interest rate securities also.