Best corporate bond mutual funds to invest in May 2025

Are you planning to invest in relatively-safe debt schemes to take care of your near-term goals? Or are you searching for ‘relatively safe’ debt funds to invest for three years or more? If your answer is yes, you can consider investing in corporate bond funds in May 2025.

These schemes invest at least 80% of their corpus in the papers of the highest-rated companies. This makes them relatively safer than other debt schemes such as credit risk funds. They are also safer than gilt funds and long term debt funds that are highly sensitive to interest rate changes in the economy.

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You should pay attention to these two factors: safety and interest rates. Safety became a crucial factor for debt fund investors after a series of defaults and downgrades in the debt space almost three years ago. The shutting down of six schemes by Franklin Templeton Mutual Fund shook conservative investors in debt schemes. Though the environment is different now, you should still proceed cautiously.

The second factor of interest rate changes assumes significance at the current juncture. The central banks are trading very cautiously as the inflationary scenario continues to be persistent and they have been warning investors that a rate cut may take time. In India too the RBI has been holding interest rates and it is undecided on the rate cuts.

Don't think that corporate bond funds do not have any risk. Sure, the highest rating of AAA offers you higher safety. But make sure your fund manager is not taking any extra risk to make extra returns.

Here are our recommended corporate bond funds you may consider investing to take care of your short-term investments. There are no changes in the recommendation list this month. If you are investing in these schemes, you can relax and continue with your investments. Follow our monthly updates regularly.

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Best Corporate Bond Funds to invest in May 2025:

• HDFC Corporate Bond Fund
• Aditya Birla Sun Life Corporate Bond Fund
• ICICI Prudential Corporate Bond Fund
• Sundaram Corporate Bond Fund

Methodology:
ETMutualFunds has employed the following parameters for shortlisting the debt mutual fund schemes.
1. Mean rolling returns: Rolled daily for the last three years.

2. Consistency in the last three years: Hurst Exponent, H is used for computing the consistency of a fund. The H exponent is a measure of randomness of NAV series of a fund. Funds with high H tend to exhibit low volatility compared to funds with low H.
i)When H = 0.5, the series of returns is said to be a geometric Brownian time series. This type of time series is difficult to forecast.

ii)When H <0.5, the series is said to mean reverting.

iii)When H>0.5, the series is said to be persistent. The larger the value of H, the stronger is the trend of the series

3. Downside risk: We have considered only the negative returns given by the mutual fund scheme for this measure.
X =Returns below zero

Y = Sum of all squares of X

Z = Y/number of days taken for computing the ratio

Downside risk = Square root of Z

4. Outperformance: Fund Return – Benchmark return. Rolling returns rolled daily is used for computing the return of the fund and the benchmark and subsequently the Active return of the fund.

Asset size: For debt funds, the threshold asset size is Rs 50 crore

(Disclaimer: past performance is no guarantee for future performance.)