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SBI Corporate Bond Fund

Categorised as a Debit-credit opportunities fund, the SBI corporate bond fund is an open-ended debt scheme. In this scheme, 80%-100% of the assets are invested in corporate bonds that are rated AA+ and above, while 0%-20% is invested in other debt instruments, money market instruments and Central and State Government dated securities.

The scheme even has the scope of investing 0%-10% in REITs and InVITs units. The asset management company, namely the SBI Mutual Fund, manages this fund on behalf of its investors. One of the major reasons why one should opt for corporate bonds over government bonds is the expectation of a better return on the amount invested. Talking about long term horizon, when considering a time frame of three years and more, the fund has provided returns to investors to the tune of a percentage that exceeds the minimum levels of risk associated with this debt fund.

Overview of SBI Corporate Bond Fund

The corporate bond fund can reward you in the long run with your invested amount. Like any other investment tool, this fund has certain salient features.

  • Lets your capital grow and creates growth opportunities for individuals.
  • Growth being the main objective of the fund, the fund managers invest these in money market instruments where there are steady returns and minimum risks involved.
  • Provides a steady growth in the mid-term to the long term.
  • It is one of the most liquid funds in the market presently.

This New Fund Offer (NFO), launched by SBI Mutual Fund, renders a golden opportunity to its investors to predominantly invest in corporate bonds that are AA+ rated, so as to produce an added spread on the part of their debt investments to corporate debt securities of topmost quality. The NFO period of this fund was from 16th to 29th January, 2019.

This particular corporate bond intends to invest in money market securities and thereby maintain moderate liquidity in the investor's portfolio. Benchmarked against NIFTY Corporate Bond Index, the AAA-rated corporate bonds have been measured to perform across six duration buckets. The NIFTY Corporate bond index estimates an average yearly return of 6.14% and an average three-year return of 7.33% for this particular fund. The minimum application amount stands at Rs. 5000.

The fund manager for SBI Corporate Bond Fund is Mr. Rajeev Radhakrishnan, who has the credit of managing other popular funds, like SBI Short Term Debt Fund and SBI Magnum Ultra Short Term Debt Fund.

Investment Objective of SBI Corporate Bond Fund

Investment Objective

To provide the investors an opportunity to predominantly invest in corporate bonds rated AA+ and above to generate additional spread on part of their debt investments from high quality corporate debt securities while maintaining moderate liquidity in the portfolio through investment in money market securities.

Investment Strategy

The scheme aims to generate attractive returns through high quality corporate debt securities which are rated AA+ and above. Performance will depend on the Asset Management Company’s ability to accurately assess the financial position of the security issuers regarding paying off its debt.

The investments may be made in primary as well as secondary markets. The portfolio will be sufficiently diversified to minimize credit risk. The Scheme being open-ended, some portion of the portfolio will be invested in money market instruments to meet the liquidity requirements. Past performance of a fund can never be a parameter to judge how a fund would perform in the future. However, past track records simply make you understand the investment style of the fund. This helps you to anticipate the future performance of the investment plan.

To fulfil the pre-set goals of the fund, the fund managers keep looking out for development in the target sectors. In this case, it is anticipated that corporate bonds would yield the best returns, and hence, the fund is invested in various sectors and segments, so as to ensure a diversified and balanced portfolio. Non-convertible debentures across diverse sectors, like finance, retail, infrastructure, etc. are offered to investors through the SBI Corporate Bond Fund.

Additionally, this fund finds access in CBLO deposits and zero-coupon bonds. The fund managers opt for ones that are strong fundamentally when selecting the companies for making corporate bonds for this particular fund. The top selections for the fund are always those corporate entities that are stable and efficient enough to provide long term profits and sure to perform well in a growing economy.

This authenticates the fact that this fund is not invested in risky equity-based instruments. It is put in corporate bonds and NCD's that permit the risk factor of the fund to remain modest.

Statistics of SBI Corporate Bond Fund

The inception date for investments in the SBI corporate bond fund was initiated in January 16, 2019.

Asset management companies cannot charge entry load in any form from mutual fund investors as per regulations set by SEBI and thus, SBI corporate bond fund too is free from any entry load.

The exit load for the SBI corporate bond fund is:

For exit on or before 6 months from the date of allotment: - For 4% of the investments – Nil and for the remaining investments - 1.00%

For exit after 6 months from the date of allotment - Nil

The minimum first lump sum investment amount for this investment plan is Rs. 5000. However, having done this, the consecutive investments can be as low as Rs. 1000.

SBI Corporate Bond Fund Performance

Since its inception, the SBI Corporate Bond Fund has accounted a compounded annualised growth rate performance of 5.92%, as against the scheme benchmark by NIFTY Corporate Bond Index of 5.4%. However, the additional benchmark of CRISIL Ten-Year Guilt Index stands at 11.18%.

Accordingly, the current value of standard investments of Rs. 10,000 from inception to 16/1/2019 has yielded Rs. 10,591.50 in the SBI Corporate Bond Fund, as against its Scheme Benchmark Rs. 10,539.73, while the additional benchmark index stands at 11,117.51. However, as on 31st July, 2019, the fund has recorded a performance rate of 5.92%.

Top Holdings of SBI Corporate Bond Fund

As of 31/07/2019, some of the top holdings of SBI Corporate Bond Fund are as follows.

  • Rural Electrification Corporation limited Bonds (AAA) - 1.18% allocation.
  • Muthoot Finance Limited Debenture (AA) - 5.51% allocation.
  • Essel Corporate Resources Private Limited NCD (AA-) - 5.16% allocation.
  • Power Finance Corporation Limited Bonds (AAA) - 4.59% allocation.
  • Sterlite Power Grid Ventures Limited Debentures (A+) - 4.00% allocation.
  • Dalmia Bharat Debenture (AA) - 3.93% allocation.
  • Aditya Birla Retail Limited Debenture (A+) - 3.21% allocation.
  • Reliance Home Finance Limited Debenture (AA+) - 2.99% allocation.
  • Pune Solapur Expressway Private Limited Debenture - 2.84% allocation.
  • Bank of Baroda Debenture (AA+) - 2.76% allocation.

The list above is mainly for illustrative purposes. However, it is the fund manager's discretion when to invest and how much to invest, which further depends on the market conditions and SEBI regulations.

Why Invest in SBI Corporate Bond Fund

The SBI Corporate bond fund, like any other corporate fund, serves as a very good option to invest, in terms of low-risk involved and good returns on an almost consistent manner. This particular fund gives investors the leverage to invest predominantly in AA+ Corporate bond securities. The income earned by investors generally sums up to a higher rate than what they could have expected out of their fixed deposit accounts. In fact, even those companies which are about to go bust also offer higher interest rates for their corporate funds. However, the risk factor involved in a corporate fund is a bit higher than those involved with government bonds and securities.

Wish and tax considerations of SBI corporate bond fund

When an investor puts his earnings in an SBI Corporate bond fund, your money is exposed to moderate risks. This money cannot be utilised for tax deductions, and the profits are subject to STCG and LTCG. Additionally, if the investor holds the fund units for less than three years from the date of allocation of the units, the investor has to pay STCG as per his tax slab during the current financial year. However, when the investments are held beyond three years, the LTCG is payable 20% with indexation and 10% if indexation benefits are not available.

Documents Required for SBI Corporate Bond Fund

To be able to apply for SBI Corporate Bond Fund, the investors need to fulfil the following criteria relating to the submission of documents and other necessary guidelines that need to be duly followed.

  1. The application form for the SBI corporate bond fund should be procured and duly filled in with black or blue ink only.

  2. Signatures on the form and other documents should be with black or blue ink and in English or any other Indian language only.

  3. If the application is under a Power of Attorney or by limited corporate companies or bodies, the relevant Power of Attorney document or duly notarised copy of it should be submitted along with the application form.

  4. The cheque or demand draft of the payable amount should be submitted along with other documents.

  5. An attested copy of the PAN (permanent account number) of the investor is mandatory for all categories of investors, including individuals, non-resident Indians, guardians of minors, and so on.

  6. Investors need to state their bank account details as a mandatory requisition by SEBI for investment in mutual funds. This has been done to safeguard the interests of applicants by avoiding frauds, misuses, and thefts of warrants in transit. Applications not consisting of these details would be rejected. The compulsory details pertaining to this, to be incorporated in the form, are as follows:

  • Details of the city of the clearing circle in which the branch of the bank is participating.
  • The nine-digit MICR (Magnetic Ink Character Recognition) number that appears on the bottom white strip of a cheque leaf, right of the cheque number.
  • The eleven-digit IFSC code of the bank branch where the investor has his account.
  • ECS or Direct credit facility as per availability, so that the redemption proceeds or the dividend amounts can be directly put into the bank account provided by the policyholder.
  • The type of bank account most relevant as per your suitability, which would depend on the investors residential status and intent of repatriation.

Submission procedures of the application form

Application once duly filled, along with the remittance amount, should be submitted before the closing date of the offer at the SBI mutual fund corporate office, SBIFMPL branches, the assigned office of Registrar or other collecting centres as designated by the AMC. Applications can be sent by post to the Registrar's office. It should be accompanied with a draft payable at Chennai. However, the date of receipt of the forms at the Registrar's office would be considered to be the date of submission.