Corporate Bond Mutual Funds

A corporate bond fund must keep at least 80% of its investable assets in company bonds rated AA+ or higher. A mutual fund is a shared pot of money from many investors, run by a professional manager within SEBI's rules. In a debt fund, the manager lends that money out through bonds and similar paper.

SEBI's category table says: "Minimum investment in corporate bonds- 80% of total assets (only in AA+ and above rated corporate bonds)". Under its name, each scheme must print SEBI's short description: "An open ended debt scheme predominantly investing in AA+ and above rated corporate bonds".

SEBI's rule for this category is about rating, not duration. It sets no band for duration, roughly how many years the bonds take on average to pay back, and no maturity limit. A fund's Potential Risk Class cell, covered below, can cap its duration.

The wider debt rules still apply. At least a tenth of net assets, the fund's total value, must stay in liquid assets such as cash, treasury bills and government securities.

A rated bond gets a letter grade on a standard scale SEBI sets. A credit rating is the agency's view of how likely a borrower is to pay interest and repay in full, on time. Credit risk means the borrower might pay late, or never pay back.

SEBI's wording for bonds with more than a year to run when issued:

• AAA: "the highest degree of safety regarding timely servicing of financial obligations", with the "lowest credit risk".
• AA: "high degree of safety", with "very low credit risk".
• A: "adequate degree of safety".
• BBB: "moderate degree of safety". BBB- is the last grade still counted as investment grade.

A plus or minus sign marks a bond's standing within its grade, so AA+ is the top step of AA. "AA+ and above" therefore covers two ratings only: AAA and AA+. A bond rated AA or AA- cannot count towards the 80%.

A rating has limits. It is an opinion, not a recommendation to buy, hold or sell. It does not measure liquidity or interest-rate risk, both explained below. And it can move. Agencies must track a bond for its whole life, and SEBI's investor site warns that ratings "can change quickly".

Because SEBI counts the 80% only on what is left after the liquid assets the fund must hold. SEBI sets the base as "Net assets excluding the extent of minimum stipulated liquid assets i.e. 10%."

Take a fund worth ₹100. Its rules make it hold at least ₹10 in liquid assets. The 80% then applies to the other ₹90, which comes to ₹72. So at least 72% of the whole fund must be company bonds rated AA+ or higher.

A fall in prices can push a fund below its minimum without any action of its own. It then generally has 30 business days to get back in line, extendable by up to 60.

SEBI also caps lending to a single borrower. One AAA-rated issuer may take at most 10% of the fund, an AA issuer 8% and one rated A or lower 6%. The overall one-issuer limit can go to 12% with prior approval of the fund house's board and the trustees. The trustees, a separate company, hold the fund's assets on your behalf and check that SEBI's rules are followed. One business group may take at most 20% of net assets, or 25% with approval.

A top rating keeps credit risk low, but two other risks stay. Interest-rate risk is the chance that moving rates change what the fund's bonds are worth. Liquidity risk is the chance a holding cannot be sold quickly at a fair price.

SEBI's investor website says: "When interest rates rise, bond prices may fall, and vice versa." Valuation agencies price every holding at market levels, so the NAV, the price of one unit, moves with them. A AAA rating is about repayment. It says nothing about how the bond's price moves when rates change.

Every fund must show a riskometer, SEBI's risk label with six levels from Low to Very High, reassessed each month. The portfolio gets a score for each of the three debt risks. SEBI averages them, then matches the result to a level. The rate score rests on Macaulay duration: roughly the average number of years until a bond's payments come back, each weighted by its value today. Longer means a higher score. Our ultra short duration page explains it more fully.

Take a portfolio holding only listed AAA company bonds with no special features. Credit scores 1 and liquidity 2. At a duration of 1 to 2 years, the rate score is 3, and the three average exactly 2: Low to Moderate. Between 2 and 3 years, the rate score becomes 4, the average about 2.33, and the level Moderate. With the top rating, credit and liquidity scores stay low, so duration largely decides whether such a fund reads Low to Moderate or Moderate.

Most listed corporate bond funds read Moderate on 29 September 2026; the rest read Low to Moderate.

A bond cut below investment grade, or one that defaults, may be moved into a separate segregated portfolio, with the trustees' approval. You get matching units in it and receive whatever is later recovered. None of the listed corporate bond funds had a current one on 29 September 2026.

They split on who borrows and how highly that borrower is rated.

• A corporate bond fund keeps at least 80% in company bonds rated AA+ or higher.
• A banking and PSU fund keeps at least 80% in debt of banks, municipal bodies, public financial institutions and public sector undertakings (government-owned companies). SEBI sets no rating floor here, and now names the category Banking and PSU Debt Fund.
• A credit risk fund keeps at least 65% in company bonds rated AA or below, AA+ excluded.

A banking and PSU fund's rule is about who borrows; a corporate bond fund's is about who borrows and how highly they are rated. Corporate bond and credit risk funds sit either side of the AA+ line. For its minimum, one needs AA+ or better and the other AA or worse.

On 29 September 2026, most listed banking and PSU funds read Moderate and the rest Low to Moderate. Most listed credit risk funds read Moderately High.

Koshex suggests 1 to 3 years or more for corporate bond and banking and PSU funds, and 3 years or more for credit risk funds. These are our suggestions, not SEBI's.

Payouts are taxed at your slab rate, the normal rate on your income. So are gains on units bought on or after 1 April 2023.

IDCW is a payout from the fund's income or gains; the NAV drops by whatever is paid. The growth option pays out nothing and leaves the money invested. IDCW is added to your income and taxed at slab rate. TDS, tax deducted at source, is taken before the money reaches you. When one fund house's IDCW to you tops ₹10,000 in a tax year, it withholds 10% of the entire sum, not only the part above. That TDS counts towards your tax for the year, and anything above what you owe is refunded.

An assumed example, not a forecast. A fund house pays you ₹34,000 of IDCW in tax year 2026-27. It keeps back ₹3,400 as TDS, and ₹30,600 lands in your account. Tax is still due on the full ₹34,000. On top comes cess, an extra 4% on the tax. We assume no surcharge, the added charge on the tax that applies once total income passes ₹50 lakh.

• If it all falls in a 20% slab: ₹6,800 plus ₹272 cess makes ₹7,072. Less the ₹3,400 already deducted, ₹3,672 remains.
• If it all falls in a 30% slab: ₹10,200 plus ₹408 cess makes ₹10,608, so ₹7,208 remains.

This category is a Specified Mutual Fund under section 76 of the Income-tax Act, 2025. That means more than 65% sits in debt and money market instruments.

Units bought before 1 April 2023 depend on the holding period, the time since you bought them. Within 24 months, the profit is a short-term capital gain at slab rate. Beyond that it is a long-term capital gain, taxed at 12.5% with no inflation adjustment to your cost.

A resident pays no TDS on redemption gains.

Returns matter, but so do risk, cost and what each fund owns. There are 20 listed corporate bond funds, managing ₹1,72,279 Cr between them. The table shows only the top 10 for the ranking you select. 20 have a 3-year record, and only those are ranked on 3-year return and counted in the averages.

• CAGR: average yearly growth over a period, as if the fund rose at one steady pace. Put a fund's 3-year and 5-year CAGR next to the category's 6.0% and 6.3%. Both are simple averages of past returns over funds with a 3-year record.
• Riskometer and PRC cell. The Potential Risk Class grid gives each debt fund one of nine cells, capping its duration and its credit risk. The cell is a ceiling, not a target, and is printed with the scheme's description. Our short duration page walks through the grid.
• Expense ratio: the yearly fee, a percentage of your money deducted from the fund's value.
• AUM: assets under management, the current value of all the money a fund runs.

Check what it holds, too. Each month a fund publishes its full portfolio, where the ratings of its holdings show. Debt funds also publish it each fortnight, with each bond's yield. At the end of August 2026, company bonds were the biggest part of the funds on this list, alongside some cash and government securities. Factsheets usually give the Macaulay duration and the yield to maturity, the return the bonds would pay if held to maturity at today's prices.

No SEBI rule fixes an exit load, a fee for selling within a set time, here. Each fund sets any load in its scheme document, and some charge none. Redemptions are paid within 3 working days.

You can invest a lumpsum, one larger amount at once, or a SIP, a fixed sum at regular intervals, usually monthly.

Picture an MBA or professional course fee due in about two years. Koshex's 1 to 3 years or more suggestion is meant for timelines like that. As an AMFI-registered distributor (ARN-154632), Koshex is an intermediary helping you buy and manage funds. Koshex offers regular plans, the version bought through a distributor, and we help you pick a fund that suits your goal and timeline.