Corporate bond funds mostly concentrate on highly rated investments, providing a degree of stability and a predictable income stream.
ICICI Prudential Corporate Bond Fund led December 2025 with strong inflows and a Rs. 35,278 crore AUM.
Most corporate bond funds delivered 6.6–6.8% five-year returns with expense ratios near 0.35% in December 2025.
Corporate bond funds are now a steady choice for Indian investors who want regular income without taking equity-level risk. This category still attracts strong inflows, backed by stable interest rates, improving corporate balance sheets, and demand for predictable returns. If you are planning to invest, understanding how these funds work and which ones stand out can help you make a confident decision.
Corporate bond funds work by pooling money from multiple investors and putting it in bonds issued by companies. Think of it as lending money to businesses through a fund manager who does all the hard work. These companies pay regular interest on the borrowed amount, which becomes your income.
The best part? You can get professional management and diversification without having to pick individual bonds yourself. The fund manager carefully selects bonds based on credit ratings, interest rates, and maturity dates. This expert oversight helps balance risk and reward. By regulation, at least 80 % of the portfolio is invested in highly rated corporate bonds.
Here are the top-performing funds:
ICICI Prudential Corporate Bond Fund leads the pack with a 5-year return of 6.68% and manages assets worth Rs. 35,278 crores. Close behind is Nippon India Corporate Bond Fund, delivering 6.84% returns over five years with an AUM of Rs. 11,276 crores.
Axis Corporate Bond Fund has also caught investors' attention with strong performance numbers of 6.67% over five years. These funds always maintain relatively low expense ratios between 0.35% to 0.36%, which means more of your money stays invested rather than going toward fees.
Aditya Birla Sun Life Corporate Bond Fund witnessed the highest net inflow this month, adding Rs. 2,840 crores to its corpus. This surge shows the growing investor confidence in all these funds’ management and strategy.
While corporate bond funds are relatively stable, they are not risk-free. Credit risk exists if a company fails to meet its payment obligations. Interest rate changes can also affect bond prices, especially in the short term. Market volatility may cause temporary dips in NAV, even if the underlying bonds are sound. Diversification across issuers and high credit ratings help manage these risks, which is why fund selection matters.
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For investments made on or after April 1, 2023, gains from corporate bond funds are taxed as per your income tax slab, regardless of holding period. This has reduced the earlier tax advantage of long-term debt funds. Even so, for investors in lower tax brackets or those seeking stability, these funds remain relevant.
Corporate bond funds mostly suit investors for predictable income, moderate risk, and better returns than traditional fixed-income options. They work well for short- to medium-term goals. These funds are also a stabilising component in a diversified portfolio.
Recent portfolio trends show higher exposure to financial services, utilities, and real estate. Over the last six months, allocation to real estate bonds has grown sharply, though from a smaller base. Financial services still dominate overall holdings, reflecting the strong credit profile of banks and NBFCs.
Some funds have also added infrastructure-related securities, such as IndiGrid Infrastructure Trust units, indicating selective risk-taking to improve yields without compromising credit quality.
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Corporate bond funds deliver a strong mix of safety, income, and consistency. Choosing these low-risk Indian investments with high credit quality, reasonable expense ratios, and a solid track record can help you get good returns with confidence. If you value calm growth over sharp swings, this category deserves a serious look.
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1. Are corporate bond funds suitable for conservative investors?
As corporate bonds are regarded as quite safe, corporate bond funds also fare well in this criterion since they mainly invest in AAA-rated corporate bonds. Although they are not totally risk-free, it can be assumed that they may avoid drastic losses.
2. What is the difference between corporate bond funds and fixed deposits?
Unlike fixed deposits, corporate bond funds have market exposure and hence have the potential to provide marginally higher returns. They offer liquidity and expert services, although the returns received may fluctuate.
3. What should be the typical investment tenor of corporate bond funds?
These types of investment instruments are most suitable for a period of two to three years or more. By this duration, they can manage changes in the rate of interest as well as yield consistent interest income.
4. How does taxation affect returns from corporate bond funds now
The taxes for gains from investment in corporate bond funds after April 1, 2023, will depend upon the investor's income slab. Although it is less tax-efficient, it is still a good option for investors with low taxes and who seek a stable market.
5. Should corporate bond funds be included in a diversified investment portfolio?
Yes, corporate bond funds can help diversify a portfolio by reducing volatility. They are investment instruments that generate consta