Tata Corporate Bond Fund invests in AA+ Rated Bonds – Who can invest in this NFO?

Tata Corporate Bond Fund NFO - Issue Details and ReviewTata Corporate Bond Fund – NFO Issue Details and Review

Tata 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. Post Franklin debt mutual funds fiasco, investors are concerned about investing in debt mutual funds. In this article we would provide Tata Corporate Bond Fund NFO issue details and various risk factors associated with such corporate bond funds.

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Tata Corporate Bond Fund – NFO issue details

This is an open-ended equity mutual fund scheme. Here are the NFO issue details. The scheme would reopen for further subscription after the initial subscription period is closed.

Scheme Opens 22-Nov-21
Scheme Closes 29-Nov-21
Scheme reopens for continuous purchase/sale 07-Dec-21
Minimum Lumpsum Rs 5,000
Minimum SIP Not indicated in SID
NAV of the fund Rs 10 during NFO period
Entry Load Nil
Exit Load Nil
Risk Moderate Risk
Benchmark CRISIL Corporate Bond Composite Index
Fund Manager Mr Abhishek Sonthalia
Max TER 2.00%

Tata Corporate Bond Fund Scheme Information Document (SID)

What is the investment objective of this MF scheme?

This is an open-ended debt scheme predominantly investing in AA+ & above rated corporate bonds, with the flexibility of any Macaulay Duration & relatively high interest rate risk & moderate credit risk.

The investment objective of the scheme is to generate returns over short to medium term by investing predominantly in corporate debt instruments.

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:

Tata Corporate Bond Fund NFO - Asset Allocation chart

Type of instruments Min % Max % Risk Profile
Corporate Debt instruments (including securitised debt) across maturities and ratings 80% 100% Medium
Other Debt & Money Market instruments 0% 20% Low to Medium
Units issued by REITs and InvITs 0% 10% Medium to High

Why to invest in the Tata 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 B rated instruments.

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 with risk. Corporate bonds have generated 8% to 10.6% annualized returns in the last 3 to 5 years (excluding two funds, BNP Paribas Corporate Bond Fund and Union Corporate Bond Fund).

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

2) It invests in REITs and InvITs up to 10% which are generally high risk.

3) 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.

4) This fund invests in corporate debt instruments where there is interest rate risk, liquidity risk and default risk.

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

Performance of existing Corporate Bond Funds

Now let us look at the performance of the existing corporate bond mutual fund schemes. These are annualised returns.

Scheme Name  2 Yrs 3 Yrs 5 Yrs
L&T Triple Ace Bond Fund 8.7% 10.6% 7.4%
Sundaram Corporate Bond Fund 7.5% 9.4% 7.4%
UTI Corporate Bond Fund 7.5% 9.4% NA
HDFC Corporate Bond Fund 8.2% 9.3% 7.9%
Aditya Birla Sun Life Corporate Bond Fund 8.2% 9.0% 7.9%
Invesco India Corporate Bond Fund 7.2% 9.0% 6.4%
ICICI Prudential Corporate Bond Fund 7.9% 8.8% 7.7%
DSP Corporate Bond Fund 6.6% 8.7% NA
Franklin India Corporate Debt Fund 7.1% 8.6% 8.1%
IDFC Corporate Bond Fund 8.1% 8.6% 7.5%
PGIM India Premier Bond Fund 7.7% 8.5% 7.2%
Canara Robeco Corporate Bond Fund 6.9% 8.4% 7.1%
Kotak Corporate Bond Fund 7.2% 8.3% 7.8%
Axis Corporate Debt Fund 8.4% 8.2% NA
Nippon India Corporate Bond Fund 7.7% 8.0% 7.5%
Union Corporate Bond Fund 7.1% 6.7% NA
BNP Paribas Corporate Bond Fund 6.6% 5.3% 5.5%

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Should you invest in Tata Corporate Bond Fund NFO?

Tata Corporate Bond Fund invests majorly in AA+ rated corporate bonds. However, it invests up to 20% in below AA rated bonds. It also invests up to 10% in REITs and InvITs which are high risk. More than 90% of Corporate bond funds have generated 8% to 10% annualized returns in the last 3 to 5 years. If you are moderate risk taker, gone through the risks indicated above and willing to invest for 3+ years, you can invest in such funds. If you do not want to test with new funds, you can invest in existing corporate bond funds that have been performing well. Low risk investors should stay away from such schemes.

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Suresh KP


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