{"id":12659,"date":"2022-06-22T12:57:59","date_gmt":"2022-06-22T07:27:59","guid":{"rendered":"https:\/\/kuvera.in\/blog\/?p=12659"},"modified":"2022-08-10T18:52:25","modified_gmt":"2022-08-10T13:22:25","slug":"what-are-corporate-bond-funds-and-how-do-they-work","status":"publish","type":"post","link":"https:\/\/kuvera.in\/blog\/what-are-corporate-bond-funds-and-how-do-they-work\/","title":{"rendered":"What Are Corporate Bond Funds, and How Do They Work?"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_40 counter-hierarchy ez-toc-counter ez-toc-light-blue ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" area-label=\"ez-toc-toggle-icon-1\"><label for=\"item-69d797055814e\" aria-label=\"Table of Content\"><span style=\"display: flex;align-items: center;width: 35px;height: 30px;justify-content: center;direction:ltr;\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/label><input  type=\"checkbox\" id=\"item-69d797055814e\"><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/kuvera.in\/blog\/what-are-corporate-bond-funds-and-how-do-they-work\/#What_Are_Corporate_Bond_Funds\" title=\"What Are Corporate Bond Funds?\">What Are Corporate Bond Funds?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/kuvera.in\/blog\/what-are-corporate-bond-funds-and-how-do-they-work\/#How_Do_Corporate_Bond_Funds_Work\" title=\"How Do Corporate Bond Funds Work?\">How Do Corporate Bond Funds Work?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/kuvera.in\/blog\/what-are-corporate-bond-funds-and-how-do-they-work\/#Who_Should_Invest_in_Corporate_Bond_Funds\" title=\"Who Should Invest in Corporate Bond Funds?\">Who Should Invest in Corporate Bond Funds?<\/a><ul class='ez-toc-list-level-3'><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/kuvera.in\/blog\/what-are-corporate-bond-funds-and-how-do-they-work\/#Investors_looking_for_stable_income\" title=\"Investors looking for stable income:\">Investors looking for stable income:<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/kuvera.in\/blog\/what-are-corporate-bond-funds-and-how-do-they-work\/#Those_with_a_moderate_risk_profile\" title=\"Those with a moderate risk profile:\">Those with a moderate risk profile:<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/kuvera.in\/blog\/what-are-corporate-bond-funds-and-how-do-they-work\/#For_conservative_investors\" title=\"For conservative investors:\">For conservative investors:<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/kuvera.in\/blog\/what-are-corporate-bond-funds-and-how-do-they-work\/#For_medium-long_term_horizon\" title=\"For medium-long term horizon:\">For medium-long term horizon:<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/kuvera.in\/blog\/what-are-corporate-bond-funds-and-how-do-they-work\/#Features_of_Corporate_Bond_Funds\" title=\"Features of Corporate Bond Funds\">Features of Corporate Bond Funds<\/a><ul class='ez-toc-list-level-3'><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/kuvera.in\/blog\/what-are-corporate-bond-funds-and-how-do-they-work\/#Primary_allocation\" title=\"Primary allocation:\">Primary allocation:<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/kuvera.in\/blog\/what-are-corporate-bond-funds-and-how-do-they-work\/#Other_allocations\" title=\"Other allocations:\">Other allocations:<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/kuvera.in\/blog\/what-are-corporate-bond-funds-and-how-do-they-work\/#Bond_price\" title=\"Bond price:\">Bond price:<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/kuvera.in\/blog\/what-are-corporate-bond-funds-and-how-do-they-work\/#Maturity_Duration\" title=\"Maturity Duration:\">Maturity Duration:<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-13\" href=\"https:\/\/kuvera.in\/blog\/what-are-corporate-bond-funds-and-how-do-they-work\/#Coupon\" title=\"Coupon:\">Coupon:<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-14\" href=\"https:\/\/kuvera.in\/blog\/what-are-corporate-bond-funds-and-how-do-they-work\/#Bond_yields\" title=\"Bond yields:\">Bond yields:<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-15\" href=\"https:\/\/kuvera.in\/blog\/what-are-corporate-bond-funds-and-how-do-they-work\/#Par_value_of_a_bond\" title=\"Par value of a bond:\">Par value of a bond:<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-16\" href=\"https:\/\/kuvera.in\/blog\/what-are-corporate-bond-funds-and-how-do-they-work\/#Benefits_of_Investing_in_Corporate_Bond_Funds\" title=\"Benefits of Investing in Corporate Bond Funds\">Benefits of Investing in Corporate Bond Funds<\/a><ul class='ez-toc-list-level-3'><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-17\" href=\"https:\/\/kuvera.in\/blog\/what-are-corporate-bond-funds-and-how-do-they-work\/#Higher_returns_than_other_debt_funds\" title=\"Higher returns than other debt funds\">Higher returns than other debt funds<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-18\" href=\"https:\/\/kuvera.in\/blog\/what-are-corporate-bond-funds-and-how-do-they-work\/#Stable_performance\" title=\"Stable performance\">Stable performance<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-19\" href=\"https:\/\/kuvera.in\/blog\/what-are-corporate-bond-funds-and-how-do-they-work\/#Scores_high_on_safety\" title=\"Scores high on safety\">Scores high on safety<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-20\" href=\"https:\/\/kuvera.in\/blog\/what-are-corporate-bond-funds-and-how-do-they-work\/#High_liquidity\" title=\"High liquidity\">High liquidity<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-21\" href=\"https:\/\/kuvera.in\/blog\/what-are-corporate-bond-funds-and-how-do-they-work\/#Varieties_in_investments\" title=\"Varieties in investments\">Varieties in investments<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-22\" href=\"https:\/\/kuvera.in\/blog\/what-are-corporate-bond-funds-and-how-do-they-work\/#Things_to_Check_Before_Investing_in_Corporate_Bond_Funds\" title=\"Things to Check Before Investing in Corporate Bond Funds\">Things to Check Before Investing in Corporate Bond Funds<\/a><ul class='ez-toc-list-level-3'><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-23\" href=\"https:\/\/kuvera.in\/blog\/what-are-corporate-bond-funds-and-how-do-they-work\/#Returns_expectation\" title=\"Returns expectation:\">Returns expectation:<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-24\" href=\"https:\/\/kuvera.in\/blog\/what-are-corporate-bond-funds-and-how-do-they-work\/#Risk_appetite\" title=\"Risk appetite:\">Risk appetite:<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-25\" href=\"https:\/\/kuvera.in\/blog\/what-are-corporate-bond-funds-and-how-do-they-work\/#Investment_horizon\" title=\"Investment horizon:\">Investment horizon:<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-26\" href=\"https:\/\/kuvera.in\/blog\/what-are-corporate-bond-funds-and-how-do-they-work\/#Fund_managers_role\" title=\"Fund manager&#8217;s role:\">Fund manager&#8217;s role:<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-27\" href=\"https:\/\/kuvera.in\/blog\/what-are-corporate-bond-funds-and-how-do-they-work\/#Costs_and_expenses\" title=\"Costs and expenses:\">Costs and expenses:<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-28\" href=\"https:\/\/kuvera.in\/blog\/what-are-corporate-bond-funds-and-how-do-they-work\/#Final_Word\" title=\"Final Word\">Final Word<\/a><ul class='ez-toc-list-level-4'><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-29\" href=\"https:\/\/kuvera.in\/blog\/what-are-corporate-bond-funds-and-how-do-they-work\/#Frequently_Asked_Questions\" title=\"Frequently Asked Questions\">Frequently Asked Questions<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-30\" href=\"https:\/\/kuvera.in\/blog\/what-are-corporate-bond-funds-and-how-do-they-work\/#How_are_corporate_bond_funds_taxed_in_India\" title=\"How are corporate bond funds taxed in India?\">How are corporate bond funds taxed in India?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-31\" href=\"https:\/\/kuvera.in\/blog\/what-are-corporate-bond-funds-and-how-do-they-work\/#Can_retail_investors_in_India_directly_purchase_corporate_bonds\" title=\"Can retail investors in India directly purchase corporate bonds?\">Can retail investors in India directly purchase corporate bonds?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-32\" href=\"https:\/\/kuvera.in\/blog\/what-are-corporate-bond-funds-and-how-do-they-work\/#_How_do_corporate_bond_funds_deliver_returns\" title=\"\u00a0How do corporate bond funds deliver returns?\">\u00a0How do corporate bond funds deliver returns?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-33\" href=\"https:\/\/kuvera.in\/blog\/what-are-corporate-bond-funds-and-how-do-they-work\/#Do_you_need_market_knowledge_to_invest_in_corporate_bond_funds\" title=\"Do you need market knowledge to invest in corporate bond funds?\">Do you need market knowledge to invest in corporate bond funds?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-34\" href=\"https:\/\/kuvera.in\/blog\/what-are-corporate-bond-funds-and-how-do-they-work\/#Interested_in_how_we_think_about_the_markets\" title=\"Interested in how we think about the markets?\">Interested in how we think about the markets?<\/a><\/li><\/ul><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<p>Corporate bond funds are debt funds that invest primarily in corporate bonds with the highest credit ratings. Many companies and firms issue bonds to investors to raise capital for their operations or expansion. By investing in bonds, <a href=\"https:\/\/app.kuvera.in\/explore\/mf\/c\/all\/debt\/corporate-bond-fund\">corporate bond funds<\/a> offer investors high liquidity and attractive risk-adjusted returns.<\/p>\n<p><span style=\"font-weight: 400;\">Read along to know more about these debt funds and how they work.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<p><a href=\"https:\/\/kuvera.in\/explore\/fixed-deposit\/c\/all\"><img loading=\"lazy\" class=\"size-large wp-image-13417 aligncenter\" src=\"https:\/\/kuvera.in\/blog\/wp-content\/uploads\/2022\/07\/FD-Banner_14-July-2022-1024x334.jpg\" sizes=\"(max-width: 640px) 100vw, 640px\" srcset=\"https:\/\/kuvera.in\/blog\/wp-content\/uploads\/2022\/07\/FD-Banner_14-July-2022-1024x334.jpg 1024w, https:\/\/kuvera.in\/blog\/wp-content\/uploads\/2022\/07\/FD-Banner_14-July-2022-300x98.jpg 300w, https:\/\/kuvera.in\/blog\/wp-content\/uploads\/2022\/07\/FD-Banner_14-July-2022-768x250.jpg 768w, https:\/\/kuvera.in\/blog\/wp-content\/uploads\/2022\/07\/FD-Banner_14-July-2022.jpg 1080w\" alt=\"Online Fixed Deposits on Kuvera\" width=\"640\" height=\"209\" \/><\/a><\/p>\n<p>&nbsp;<\/p>\n<h2><\/h2>\n<h2><span class=\"ez-toc-section\" id=\"What_Are_Corporate_Bond_Funds\"><\/span>What Are Corporate Bond Funds?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">According to SEBI, corporate bond funds are open-ended debt funds that invest at least 80% of their total assets in corporate bonds with the highest credit ratings. These bonds or non-convertible debentures have a rating of AA+ or above. Many of these debt funds allocate some of their assets to government securities, which carry no credit risks.\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<p>Companies with the highest credit ratings are financially strong and have a high chance of repaying their lenders on time. That is why corporate debt funds carry minimal credit risk though they can be sensitive to interest rate risks. It is important to remember that a top-rated company can default on its debt though it is unlikely.<\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">These debt funds offer a relatively high degree of safety due to their high-quality investments. They also offer higher returns compared to traditional investments like fixed deposits.\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<h2><span class=\"ez-toc-section\" id=\"How_Do_Corporate_Bond_Funds_Work\"><\/span>How Do Corporate Bond Funds Work?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Companies can raise capital through debt or <a href=\"https:\/\/app.kuvera.in\/explore\/mf\/c\/all\/equity\">equity<\/a> to continue operations or fund future expansions. Many companies prefer the debt route as issuing bonds does not dilute the shareholding pattern. Thus, many private and public companies issue corporate bonds.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">When a company issues bonds to investors, it borrows money from them. The company promises to repay the principal amount through the bond&#8217;s terms after a certain maturity period. In addition, the company pays interest or coupons on the initial investment.\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">These debt instruments form the underlying portfolio of <\/span>corporate bond funds<span style=\"font-weight: 400;\">. The prices of underlying bonds in a portfolio can go up due to increased demand. This generates additional returns over and above the fixed interest of the bond. The debt fund&#8217;s NAV (Net Asset Value) rises, and investors profit from it.\u00a0\u00a0\u00a0\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Corporate bonds are assigned credit ratings by credit rating agencies based on their quality and the company&#8217;s creditworthiness. Lower-rated bonds typically offer higher yields but come with higher credit risks. Corporate debt funds invest primarily in bonds with the highest ratings, which carry the lowest risk.\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Who_Should_Invest_in_Corporate_Bond_Funds\"><\/span>Who Should Invest in Corporate Bond Funds?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">The following investors may consider investing in corporate bond funds:<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\">\n<h3><span class=\"ez-toc-section\" id=\"Investors_looking_for_stable_income\"><\/span>Investors looking for stable income:<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Returns from corporate <a href=\"https:\/\/app.kuvera.in\/explore\/mf\/c\/all\/debt\">debt funds<\/a> tend to be predictable. However, there is no guarantee of steady returns. Long-term debt funds like corporate bond funds become riskier when the interest rates fluctuate.\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\">\n<h3><span class=\"ez-toc-section\" id=\"Those_with_a_moderate_risk_profile\"><\/span>Those with a moderate risk profile:<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\"> Corporate bond funds carry lower risks than other debt funds. However, they are not entirely risk-free. Thus, investors will want moderate risk tolerance when investing in these funds.<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\">\n<h3><span class=\"ez-toc-section\" id=\"For_conservative_investors\"><\/span>For conservative investors:<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p>Corporate bond funds<span style=\"font-weight: 400;\"> that invest in the highest quality debt instruments ensure capital preservation. This makes them ideal for risk-averse investors looking for fixed income rather than aggressive investors.\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\">\n<h3><span class=\"ez-toc-section\" id=\"For_medium-long_term_horizon\"><\/span>For medium-long term horizon:<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\"> These debt funds are suitable for investors with an investment horizon of around 2-3 years. Investors who want the indexation benefit on capital gains taxes will want to invest for at least three years.\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Features_of_Corporate_Bond_Funds\"><\/span>Features of Corporate Bond Funds<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">The following are some of the features of corporate debt funds:<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\">\n<h3><span class=\"ez-toc-section\" id=\"Primary_allocation\"><\/span>Primary allocation:<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">These mutual funds invest primarily in debt instruments issued by companies. These include bonds, commercial papers, debentures, and structured obligations. Each of these can have its unique maturity dates and risk profile.<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\">\n<h3><span class=\"ez-toc-section\" id=\"Other_allocations\"><\/span>Other allocations:<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p>Corporate bond funds<span style=\"font-weight: 400;\"> tend to invest a small amount in government securities, especially when there are no suitable opportunities for high-quality corporate debt. In addition, they can invest in sovereign fixed-income securities.<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\">\n<h3><span class=\"ez-toc-section\" id=\"Bond_price\"><\/span>Bond price:<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">A change in the market interest rates can affect the price of bonds. The longer the bond maturity period, the more its price variation will be due to interest rate changes. You may want to check the prevailing rates before investing.\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\">\n<h3><span class=\"ez-toc-section\" id=\"Maturity_Duration\"><\/span>Maturity Duration:<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">There is no restriction on the maturity duration of securities a <\/span>corporate bond fund <span style=\"font-weight: 400;\">holds. While some funds invest in bonds with short-term maturities, others invest in medium-term or long-term maturity periods ranging from 4 to 7 years.\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\">\n<h3><span class=\"ez-toc-section\" id=\"Coupon\"><\/span>Coupon:<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">This term refers to the interest rate offered by a bond expressed as a percentage of the par value. Any company must pay regular interest to its bondholders till the maturity date.\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\">\n<h3><span class=\"ez-toc-section\" id=\"Bond_yields\"><\/span>Bond yields:<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\"> The current yield of a bond refers to its total annual returns. Yield to Maturity (YTM) refers to the in-house returns rate from all the cash flows of a bond. This includes the bond\u2019s coupon payments, principal investment, and gains from price changes. The higher the YTM, the higher will be your profits.\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\">\n<h3><span class=\"ez-toc-section\" id=\"Par_value_of_a_bond\"><\/span>Par value of a bond:<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">The par value is the amount that the bond issuer will pay upon its maturity. This includes the principal investment and fixed interests.\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Benefits_of_Investing_in_Corporate_Bond_Funds\"><\/span>Benefits of Investing in Corporate Bond Funds<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Given are some of the many benefits of investing in corporate bond funds:<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li aria-level=\"1\">\n<h3><span class=\"ez-toc-section\" id=\"Higher_returns_than_other_debt_funds\"><\/span>Higher returns than other debt funds<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Corporate bond funds tend to deliver higher returns compared to other categories of debt funds. On average, these mutual funds deliver returns of around 8% to 10%, while gilt funds usually deliver half the profits. Despite these rates, their risk levels remain low.\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li aria-level=\"1\">\n<h3><span class=\"ez-toc-section\" id=\"Stable_performance\"><\/span>Stable performance<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">These debt funds tend to deliver better returns with lower risk compared to other categories. Over the past several years, their risk-adjusted returns have been highest as measured using their Sharpe ratio. The performance of the <\/span>best corporate bond funds<span style=\"font-weight: 400;\"> has been stable even during major financial upheavals in recent years.\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li aria-level=\"1\">\n<h3><span class=\"ez-toc-section\" id=\"Scores_high_on_safety\"><\/span>Scores high on safety<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">As these debt funds provide exposure to top-quality corporate bonds, they offer a high degree of safety compared to many other debt fund categories. The <\/span>Corporate bond funds <span style=\"font-weight: 400;\">are also less sensitive to interest rate changes than most other debt funds.\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li aria-level=\"1\">\n<h3><span class=\"ez-toc-section\" id=\"High_liquidity\"><\/span>High liquidity<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Top-rated debt instruments, especially those with AAA and AA+ ratings, tend to be highly liquid due to their high demand. As a result, fund managers can rebalance the portfolio of corporate debt funds as per the prevailing market conditions. This makes it easy for you to enter and exit these schemes.<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li>\n<h3><span class=\"ez-toc-section\" id=\"Varieties_in_investments\"><\/span>Varieties in investments<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Corporate bond funds can invest in debt instruments with different tenure and credit ratings. Various types of bonds are based on their maturity periods in the market, including short-term, medium-term, long-term, and perpetual bonds. The <\/span><b>top corporate bond funds<\/b><span style=\"font-weight: 400;\"> can choose different maturity tenures for different investment objectives.\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Things_to_Check_Before_Investing_in_Corporate_Bond_Funds\"><\/span>Things to Check Before Investing in Corporate Bond Funds<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Before investing in a corporate bond fund, consider the following factors:<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\">\n<h3><span class=\"ez-toc-section\" id=\"Returns_expectation\"><\/span>Returns expectation:<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">You can check the past performance of a corporate bond fund to get an overview of its expected returns. However, it is important to remember that this is no guarantee for future returns, and many companies have defaulted in the past.\u00a0\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\">\n<h3><span class=\"ez-toc-section\" id=\"Risk_appetite\"><\/span>Risk appetite:<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">The risks of these debt funds vary with the quality of bond investments. While investments in top-rated debt instruments carry the least risk, it usually generates average returns. In contrast, lower-rated bonds carry more risk but can be highly rewarding.\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\">\n<h3><span class=\"ez-toc-section\" id=\"Investment_horizon\"><\/span>Investment horizon:<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">These debt funds invest in corporate bonds with medium to long-term maturity periods. They are ideal for investors with a long-term investment horizon. However, long-term investments in debt funds carry higher risks.\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\">\n<h3><span class=\"ez-toc-section\" id=\"Fund_managers_role\"><\/span>Fund manager&#8217;s role:<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<\/li>\n<\/ul>\n<p>Fund managers of corporate bond funds decide what credit ratings to choose to balance risks and returns. Skilled fund managers can check the market conditions to decide which investments to pick. Thus, you will want to check the fund manager&#8217;s track record before investing.<\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\">\n<h3><span class=\"ez-toc-section\" id=\"Costs_and_expenses\"><\/span>Costs and expenses:<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">All mutual funds levy a charge to cover the expenses related to management and operations. This charge is called an expense ratio. The expenses of a mutual fund scheme include distribution fees, fund management fees, advertisement expenses, etc. Some fund houses charge an exit load to discourage premature withdrawals.\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Final_Word\"><\/span>Final Word<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>&nbsp;<\/p>\n<p>Corporate bond funds<span style=\"font-weight: 400;\"> offer a combination of relatively high safety with above-average returns for a debt fund. While their risks are low, you will want to check the prevailing interest rates and their potential risks and returns. It is a good idea for new investors to stick with high-rated short-term corporate debt funds.\u00a0\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">On <\/span><a href=\"https:\/\/kuvera.in\/explore\/mf\/c\/all\/debt\/corporate-bond-fund\"><span style=\"font-weight: 400;\">Kuvera<\/span><\/a><span style=\"font-weight: 400;\">, you can invest in the direct plans of the <\/span>best corporate bond funds, <span style=\"font-weight: 400;\">at zero commission. Apart from that, you can set your<\/span><a href=\"https:\/\/kuvera.in\/goals\"><span style=\"font-weight: 400;\"> financial goals<\/span><\/a><span style=\"font-weight: 400;\"> and discover the best investment options accordingly. To get started, download the<\/span><a href=\"https:\/\/play.google.com\/store\/apps\/details?id=com.gooogle.android.kuvera.app&amp;gl=US\"><span style=\"font-weight: 400;\"> Kuvera app<\/span><\/a><span style=\"font-weight: 400;\"> or visit our <\/span><a href=\"https:\/\/kuvera.in\/\"><span style=\"font-weight: 400;\">website<\/span><\/a><span style=\"font-weight: 400;\"> and create your account and get your KYC formalities completed in minutes.\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<h4><span class=\"ez-toc-section\" id=\"Frequently_Asked_Questions\"><\/span>Frequently Asked Questions<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<p>&nbsp;<\/p>\n<ul>\n<li aria-level=\"1\">\n<h4><span class=\"ez-toc-section\" id=\"How_are_corporate_bond_funds_taxed_in_India\"><\/span>How are corporate bond funds taxed in India?<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">If you redeem your investments in these schemes within three years, you should pay short-term capital gains (STCG) tax based on your income tax slab. For a longer investment period, long-term capital gains (LTCG) tax is applicable at a 20% rate with the benefit of indexation. <\/span><b>\u00a0<\/b><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li aria-level=\"1\">\n<h4><span class=\"ez-toc-section\" id=\"Can_retail_investors_in_India_directly_purchase_corporate_bonds\"><\/span>Can retail investors in India directly purchase corporate bonds?<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Yes, retail investors in India can directly invest in newly issued bonds by participating in the offer. Moreover, they can buy bonds from existing investors through the secondary market.\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li aria-level=\"1\">\n<h4><span class=\"ez-toc-section\" id=\"_How_do_corporate_bond_funds_deliver_returns\"><\/span>\u00a0How do corporate bond funds deliver returns?<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">There is a debt market where bonds are traded. Prices of bonds can fluctuate in these markets, just like stocks in the secondary market. If a mutual fund purchases a bond at a discounted price to its face value, it will receive a higher yield.\u00a0\u00a0<\/span><\/p>\n<h4><\/h4>\n<p>&nbsp;<\/p>\n<ul>\n<li aria-level=\"1\">\n<h4><span class=\"ez-toc-section\" id=\"Do_you_need_market_knowledge_to_invest_in_corporate_bond_funds\"><\/span>Do you need market knowledge to invest in corporate bond funds?<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Yes, having some market knowledge helps investors understand corporate bond funds&#8217; potential risks and returns. New investors will want to stick to highly rated and short-term bond funds of large AMCs to avoid high risk.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<h4><span class=\"ez-toc-section\" id=\"Interested_in_how_we_think_about_the_markets\"><\/span>Interested in how we think about the markets?<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<p>&nbsp;<\/p>\n<p>Read more: <a href=\"https:\/\/kuvera.in\/blog\/category\/zen-and-the-art-of-investing\/\" target=\"_blank\" rel=\"noopener noreferrer\"><strong>Zen And The Art Of Investing<\/strong><\/a><\/p>\n<p>Check out all our &#8220;Investor Education Originals&#8221; videos on Youtube and get smart about investing.<\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<style>.embed-container { position: relative; padding-bottom: 56.25%; height: 0; overflow: hidden; max-width: 100%; } .embed-container iframe, .embed-container object, .embed-container embed { position: absolute; top: 0; left: 0; width: 100%; height: 100%; }<\/style>\n<div class=\"embed-container\"><iframe src=\"https:\/\/www.youtube.com\/embed\/N1li1d9X0jw\" frameborder=\"0\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/div>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<p>Start investing through a platform that brings goal planning and investing to your fingertips. Visit <a href=\"http:\/\/app.kuvera.in\"><strong>Kuvera.in<\/strong><\/a> to discover <a href=\"https:\/\/kuvera.in\/blog\/direct-plans-better\/\"><strong>Direct Plans<\/strong><\/a> and <strong><a href=\"https:\/\/app.kuvera.in\/explore\/fixed-deposit\/c\/all\">Fixed Deposits<\/a><\/strong> and <a href=\"https:\/\/kuvera.in\/user\/login\"><strong>start investing today.<\/strong><\/a><br \/>\n#MutualFundSahiHai #KuveraSabs<\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Corporate bond funds are debt funds that invest primarily in corporate bonds with the highest credit ratings. Many companies and firms issue bonds to investors to raise capital for their operations or expansion. By investing in bonds, corporate bond funds offer investors high liquidity and attractive risk-adjusted returns. Read along to know more about these [&#8230;]<\/p>\n<p><a class=\"btn btn-secondary understrap-read-more-link\" href=\"https:\/\/kuvera.in\/blog\/what-are-corporate-bond-funds-and-how-do-they-work\/\">Read More&#8230;<\/a><\/p>\n","protected":false},"author":11,"featured_media":12666,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mi_skip_tracking":false},"categories":[99,91],"tags":[1017,1015,1016],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v20.6 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>What Are Corporate Bond Funds, and How Do They Work? - Kuvera<\/title>\n<meta name=\"description\" content=\"By investing in bonds, corporate bond funds offer investors high liquidity and attractive risk-adjusted returns. 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