Corporate Bond Funds Explained - A Simple Guide for NRI Investors

You've saved in AED or USD. Your money sits in foreign bank accounts earning 2-4% returns. You know India offers better opportunities, but equity feels too risky, and NRI fixed deposits barely beat inflation after tax.

Here's a middle ground most NRIs miss: corporate bond funds. These debt mutual funds invest in bonds issued by companies - think HDFC Bank, Reliance, Tata - and have consistently delivered 7-9% returns over the past five years. Lower volatility than equity. Higher returns than FDs. Full repatriation rights.

At Belong, we've helped hundreds of NRIs navigate Indian debt markets through our WhatsApp community and platform. 

The most common question? "Are corporate bond funds safe, and how does taxation work?" This guide answers everything - backed by RBI regulations, current tax rules, and fund performance data from October 2025.

What Are Corporate Bond Funds? (In Plain English)

A corporate bond fund is a type of debt mutual fund that invests at least 80% of its money in bonds issued by companies, according to SEBI guidelines.

Think of it this way: when you invest in a corporate bond fund, you're essentially lending money to companies like ICICI Bank, Mahindra & Mahindra, or Power Grid Corporation. These companies issue bonds to raise capital for business expansion. In return, they promise to pay you regular interest and return your principal at maturity.

The fund manager buys a diversified basket of these corporate bonds - typically 40-80 different bonds across sectors like banking, infrastructure, NBFC, and manufacturing. This spread reduces the risk that comes from lending to just one company.

How Corporate Bonds Generate Returns

Companies pay fixed interest (called coupon) on bonds - usually 7-9% annually. The fund collects this interest from all the bonds in its portfolio and distributes it proportionally to investors.

Here's what makes it work: instead of you individually researching credit ratings, tracking maturity dates, and managing 50 different bonds, the fund manager does all of that professionally. You simply invest in the fund and receive the aggregated returns.

Corporate bond funds pool money from multiple investors to invest in a diversified portfolio of corporate bonds, offering a managed and diversified investment option, according to INDmoney.

👉 Tip: Corporate bond funds are not the same as directly buying individual bonds. Funds give you instant diversification, professional management, and daily liquidity - you can redeem anytime without waiting for maturity.

Why NRIs Should Consider Corporate Bond Funds

You're likely comparing corporate bond funds with other safe investment options. Here's the honest comparison based on October 2025 data:

The case for corporate bond funds becomes clearer when you factor in:

Liquidity advantage: Unlike FDs where you lose interest on premature withdrawal, bond funds can be redeemed anytime. You get your money in 2-3 business days.

Professional credit selection: The fund manager continuously monitors the credit health of companies. If a company's rating drops from AA to A, the manager can sell those bonds before default risk increases.

Yield optimization: Fund managers actively look for higher-yielding bonds trading at attractive prices in the secondary market - something individual investors can't easily access.

Diversification by default: Your ₹1 lakh investment gets spread across 50+ companies. Even if one company defaults (rare for AAA-rated bonds), your loss is minimal.

ICICI Prudential Corporate Bond Fund has delivered 7.21% CAGR over the past 3 years with the highest AUM in the category ₹33,753 Cr ,

Understanding Credit Ratings: The Most Important Factor

Before you invest a single rupee, you need to understand credit ratings. This determines both your returns and your risk.

Credit rating agencies like CRISIL, ICRA, and CARE rate corporate bonds based on the issuer's ability to repay. The scale runs from AAA (highest safety) to D (default).

Here's what each rating means for you:

AAA and AA Rated Bonds

These are the safest corporate bonds. Issued by large, established companies with strong financials. Think State Bank of India, HDFC Bank, Reliance Industries.

Default risk: Extremely low (less than 0.1% historically)
Interest rate: 7-8% typically
Suitable for: Conservative investors who prioritize safety

Most corporate bond funds invest 80-95% in AAA and AA-rated bonds.

A Rated Bonds

Medium safety. Companies are financially sound but more vulnerable to economic downturns.

Default risk: Low but higher than AAA (around 0.5-1%)
Interest rate: 8-9%
Suitable for: Investors willing to take slightly more risk for higher returns

BBB and Below

Higher risk. Some funds invest 5-15% here for yield enhancement.

Default risk: Moderate (2-5%)
Interest rate: 10-12%
Suitable for: Only experienced investors who understand credit analysis

👉 Tip: Check the fund's factsheet before investing. Look for "portfolio quality" or "credit profile" section. If more than 10% is in A-rated or below bonds, the fund is taking higher credit risk.

How Corporate Bond Fund Returns Work in Practice

Let's break down a real example. Say you invested ₹10 lakh in ICICI Prudential Corporate Bond Fund in January 2022.

Year 1 (2022): The fund delivered 5.8% returns. Your investment grew to ₹10.58 lakh.

Year 2 (2023): The fund delivered 7.9% returns. Your investment grew to ₹11.42 lakh.

Year 3 (2024): The fund delivered 8.1% returns. Your investment grew to ₹12.34 lakh.

3-year CAGR: 7.21%

Where did these returns come from?

1. Interest income (coupon): The bonds in the portfolio paid 7.5-8.5% interest annually
2. Capital appreciation: When interest rates fell in 2023-24, bond prices rose, giving additional gains
3. Minus expenses: The fund charged 0.35% expense ratio

What about losses? In 2022, when interest rates were rising, many bond funds saw negative returns for a few months. The ICICI fund still delivered 5.8% because of high coupon income and smart duration management.

The Axis Corporate Bond Fund has given 8.40% annualized returns in the past three years and 6.81% in the last 5 years.

Interest Rate Risk: What You Need to Know

Here's what catches many investors off guard: when interest rates rise, bond prices fall. When rates fall, prices rise.

Why? If you're holding a bond paying 7% interest, and new bonds start paying 8%, your 7% bond becomes less attractive. Its market price drops to make the effective yield match the new rate.

This is called interest rate risk or duration risk.

How Fund Managers Handle This

Professional fund managers adjust the portfolio's duration (average time to maturity) based on interest rate expectations:

When rates are expected to rise: They reduce duration by selling longer-term bonds and buying shorter-term bonds. This protects the portfolio from price drops.

When rates are expected to fall: They increase duration to capture price appreciation when rates drop.

As an NRI investor, you don't need to manage this. The fund manager handles it. But it explains why returns can be negative for a few months during rate hikes.

Over 3-5 years, interest rate movements tend to average out, and you primarily earn the coupon income.

👉 Tip: If you're investing for less than 2 years, consider short-duration debt funds instead of corporate bond funds. They have lower interest rate risk.

Taxation of Corporate Bond Funds for NRIs (2025 Rules)

This is where things get technical but critical for your returns. Pay close attention.

Since April 1, 2023, there has been a significant change in the taxation of mutual fund investments in India, according to INDmoney. For investments made on or after this date, all debt mutual funds (including corporate bond funds) are now taxed at your income tax slab rate - regardless of how long you hold them.

This is different from the old rules where holding for 3+ years gave you indexation benefits.

Current Tax Rules for NRI Investors

All gains taxed at slab rate: Whether you hold the fund for 6 months or 6 years, your gains are added to your income and taxed per your tax bracket.

Plus surcharge and cess on top of these rates.

Also Read -Old Tax Regime Vs New Tax Regime - What Should NRIs Choose

TDS (Tax Deducted at Source)

When you redeem your investment, the AMC deducts TDS before crediting money to your account.

For NRIs, TDS rates are:

Debt mutual funds: 30% TDS on gains (the highest slab rate)

You can claim a refund if your actual tax liability is lower by filing income tax returns in India.

Example: You're an NRI with no other Indian income. You invested ₹10 lakh and redeemed at ₹12 lakh after 18 months.

Gain: ₹2 lakh
TDS deducted: ₹60,000 (30% of ₹2 lakh)
Actual tax owed: 0% (because ₹2 lakh falls within basic exemption limit)
Refund due: ₹60,000

You get this refund by filing ITR-2 before July 31 of the assessment year, according to Belong's NRI tax guide.

👉 Tip: If your gains from debt funds are under ₹2.5 lakh per year and you have no other Indian income, you'll get full TDS refund. File your returns to claim it.

DTAA Benefits: Avoiding Double Taxation

If you're worried about paying tax twice - once in India and again in your country of residence - the Double Taxation Avoidance Agreement (DTAA) protects you.

India has DTAA with most countries including UAE, US, UK, Canada, Australia, Singapore, and 80+ others.

Here's how it works:

For UAE residents: UAE has no personal income tax. You pay tax only in India on your mutual fund gains. No double taxation.

For US/UK/Canada residents: You pay tax in India first (via TDS). When filing taxes in your home country, you claim a foreign tax credit for the amount already paid in India. Your home country adjusts your tax accordingly.

To claim DTAA benefits, you need a Tax Residency Certificate (TRC) from your country of residence. Apply for Form 10F online on the income tax portal.

Learn more about DTAA for NRIs in our detailed guide.

Also Read -DTAA for NRI Bank Interest: Can You Avoid 30% TDS Legally

Best Corporate Bond Funds for NRIs in 2025

Based on 3-year and 5-year performance, credit quality, and AUM size, here are the top corporate bond funds as of October 2025:

Top 5 Corporate Bond Funds

https://www.valueresearchonline.com/funds/846/nippon-india-corporate-bond-fund

Our Top Pick: Nippon India Corporate Bond Fund

We recommend this fund for most NRIs because:

1. Best 3-year performance: 8.56% CAGR
2. Strong credit quality: 94%+ in AAA/AA-rated bonds
3. Consistent outperformance: Beats category average across cycles
4. Low expense ratio: 0.36% (direct plan)
5. Adequate liquidity: ₹9,922 Cr AUM

The fund has an average Yield to Maturity (YTM) of 8.56%, which is the highest among top funds.

Source: Value Research

Alternative Choice: ICICI Prudential Corporate Bond Fund

We recommend this fund for most NRIs because:

1. Highest AUM: ₹33,453 crore means high liquidity and lower transaction costs
2. Credit quality: 96.5% in AAA + Sovereign
3. Consistent performance: 8.03% over 3 years, 6.72% over 5 years
4. Low expense ratio: 0.35% (lower than category average of 0.40%)
5. Track record: Fund manager has navigated multiple interest rate cycles successfully

Alternative Choice: Nippon India Corporate Bond Fund

If you want slightly higher returns with marginally higher risk:

• Better 3-year performance: 8.56% CAGR
• Still maintains 94.35% in debt with good credit quality
• Lower AUM (₹10,042 crore) but adequate for most investors

How to Invest in Corporate Bond Funds as an NRI

Ready to invest? Here's the exact process:

Step 1: Open an NRE or NRO Account

You cannot invest using foreign currency. All mutual fund investments in India must be made through rupee-denominated accounts.

NRE Account (Non-Resident External):

• For investing foreign earnings
• Principal and returns are fully repatriable
• No limit on how much you can send back abroad
• Interest is tax-free (but mutual fund gains are taxable)

NRO Account (Non-Resident Ordinary):

• For managing Indian income (rent, dividends)
• Repatriation limited to USD 1 million per financial year
• Requires Form 15CA/15CB for large repatriations

For most NRIs, NRE account is the better choice for mutual fund investments. Learn more about NRE vs NRO accounts in our detailed comparison.

Step 2: Complete Your KYC

Once your residential status changes to NRI, complete fresh KYC with updated documentation.

Documents needed:

• Self-attested passport copy
• Overseas address proof (utility bill, bank statement)
• Recent photograph
• PAN card (mandatory for all investments)
• Visa or OCI/PIO card
• FATCA/CRS declaration

Most AMCs now offer video KYC from abroad - no need to visit India or embassy.

Step 3: Choose Your Investment Platform

You have three options:

1. Direct with AMC: Go to ICICI Prudential, HDFC, or Nippon India websites. Lower expense ratio (no distributor commission).

2. Through broker apps: Groww, Zerodha Coin, Kuvera, or INDmoney. Easier interface, consolidated portfolio tracking.

3. Through Belong: We help NRIs compare options, understand tax implications, and track performance alongside other India investments like GIFT City FDs. Download the app to explore.

Step 4: Invest via Lump Sum or SIP

Lump sum: One-time investment. Good if you have a large amount sitting idle.

SIP (Systematic Investment Plan): Monthly investments of ₹1,000-10,000. Better for rupee-cost averaging and disciplined investing.

For debt funds, lump sum often makes more sense because returns are steadier than equity. But if you're building a position over 6-12 months, SIP works well.

Step 5: Monitor Quarterly

Check your investment once every quarter:

• Compare returns with benchmark (Nifty Corporate Bond Index)
• Review fund's credit quality (any downgrades?)
• Check expense ratio (has it increased?)
• Assess if it still aligns with your goals

👉 Tip: Set up auto-debit from your NRE account for SIPs. Most banks allow this, making investment automatic without manual intervention every month.

Also Read -How to Invest in Bonds - Beginner's Guide for NRIs

Repatriation Rules: Getting Your Money Back

This is crucial for NRIs. Can you freely transfer your investment proceeds back to your foreign account?

Investments via NRE Account

Fully repatriable without any limit. Both your principal and gains can be transferred abroad anytime.

Process:

1. Redeem your corporate bond fund units
2. Amount gets credited to your NRE account
3. Transfer to foreign bank account using SWIFT or wire transfer
4. No RBI approval needed
5. No ceiling on amount

Investments via NRO Account

Repatriable up to USD 1 million per financial year (April-March) across all NRO accounts.

Additional requirements:

• Form 15CA (self-declaration if amount \< ₹5 lakh per transaction)
• Form 15CB (CA certificate if amount > ₹5 lakh)
• Tax clearance from Income Tax Department
• Bank requires these before processing transfer

If you need to repatriate more than USD 1 million, you'll need special RBI approval (rarely granted unless it's property sale proceeds).

Learn more about NRO account charges and repatriation in our guide.

Also Read -How to Repatriate Funds from NRO/NRE Accounts

When Corporate Bond Funds Make Sense (And When They Don't)

Corporate bond funds are not right for every NRI or every goal. Here's when they work best:

Invest in Corporate Bond Funds If:

You're building an emergency fund: More liquidity than FDs, better returns than savings accounts. Keep 3-6 months of expenses here.

You're saving for medium-term goals (3-5 years): Child's education, home down payment, wedding. Corporate bond funds offer stability with decent returns.

You want rupee exposure with lower risk: Compared to equity funds, bond funds are less volatile but still give you India market exposure.

You're in a low tax bracket: If your total India income (including bond fund gains) stays under ₹5 lakh, your effective tax is only 5% or less.

You want to diversify from GIFT City FDs: If you already have USD-based GIFT City investments, corporate bond funds add INR-denominated diversification.

Skip Corporate Bond Funds If:

You need guaranteed returns: Bond fund NAV can fall short-term during rate hikes. Go for NRE fixed deposits instead.

You're investing for less than 1 year: Exit load (usually 1% if redeemed within 1 year) plus short-term volatility makes this unsuitable. Choose liquid funds or ultra-short duration funds.

You're in the 30% tax bracket with high India income: After 30% tax, your 8% return becomes 5.6% post-tax. GIFT City FDs offering 4-5% tax-free in USD might be better on a risk-adjusted basis.

You can't handle any volatility: Even debt funds can show negative returns for 1-2 months during sharp rate hikes. If that causes sleepless nights, stick to fixed deposits.

You want to avoid currency risk entirely: Corporate bond funds are INR-denominated. If rupee depreciates, your dollar-equivalent returns fall. Track this using our Rupee vs Dollar Tracker.

Also Read - Can NRIs Invest in Government Bonds and Treasury Bills?

Credit Risk vs Interest Rate Risk: The Two Big Dangers

Every corporate bond fund faces two types of risk. Understanding them helps you choose the right fund and set realistic expectations.

Credit Risk (Default Risk)

This is the risk that a company might not repay its bonds.

Example: In 2018-19, IL\&FS and DHFL defaulted on their bonds. Mutual funds holding these bonds saw 30-50% NAV crashes in those specific securities.

How to protect yourself:

1. Choose funds with 90%+ AAA and AA-rated holdings
2. Avoid funds chasing yield by buying A or BBB-rated bonds
3. Check if the fund has exposure to NBFCs (they carry higher default risk)
4. Look for diversification - no single company should be more than 5% of portfolio

HDFC Corporate Bond Fund maintains 97.1% in AAA + Sovereign

Interest Rate Risk

This is the risk that rising interest rates will reduce your fund's NAV.

How it works: Your fund holds bonds paying 7%. RBI raises rates, and new bonds pay 8%. Your old 7% bonds fall in price to match the new yield. Fund NAV drops temporarily.

How to protect yourself:

1. Check the fund's modified duration (in factsheet). Lower duration = lower interest rate sensitivity
2. Corporate bond funds typically have 3-5 year duration
3. If rates are rising, consider short-duration funds (1-2 year duration) instead
4. If rates are falling, longer duration captures more gains

Good news: Interest rate risk is temporary. Over 3-5 years, it averages out, and you earn the coupon income regardless of rate movements.

👉 Tip: In October 2025, with RBI holding rates steady at 6.50%, corporate bond funds are in a sweet spot - no immediate rate hike risk but decent yields. Use our GIFT Nifty tracker to monitor broader market sentiment.

Common Mistakes NRIs Make with Corporate Bond Funds

From helping hundreds of NRIs through our WhatsApp community, here are the mistakes we see repeatedly:

1. Chasing the Highest Returns

You see Franklin India Corporate Debt Fund showing 8.30% 3-year returns while HDFC shows 8.19%. You pick Franklin.

The problem: You didn't check how Franklin achieved those extra 0.27% returns. Did they take higher credit risk? Did they increase duration?

Better approach: Look at risk-adjusted returns (Sharpe ratio) and credit quality alongside returns.

2. Ignoring Expense Ratio

A 0.40% expense ratio vs 0.20% doesn't sound like much.

The math: On ₹10 lakh invested, that's ₹4,000 vs ₹2,000 annual fees. Over 5 years, ₹20,000 vs ₹10,000. That's ₹10,000 less in your pocket.

Better approach: For large investments (₹5 lakh+), choose direct plans with lower expense ratios. That 0.20% difference adds up.

3. Forgetting About TDS

You invest ₹20 lakh, it grows to ₹24 lakh over 3 years. You're happy with ₹4 lakh gains.

Then you redeem and get only ₹2.8 lakh gains - because ₹1.2 lakh was deducted as TDS.

The issue: You didn't plan for the TDS outflow or file returns to claim refund.

Better approach: Calculate post-tax returns before investing. If your total India income is low, plan to file ITR and claim TDS refund. Set aside money for tax if you're in a higher bracket.

4. Not Updating Residential Status

You moved abroad 2 years ago but never updated your mutual fund KYC from "Resident" to "NRI."

The risk: You're being taxed at resident rates (lower TDS) but you're violating FEMA regulations. If caught, you could face penalties and your repatriation rights might be questioned.

Better approach: Update your status within 3 months of leaving India. Contact your AMC or use online KYC update facilities.

5. Treating It Like an FD

You invest ₹10 lakh thinking it's as safe and guaranteed as a fixed deposit.

Three months later, NAV has dropped 2% due to interest rate fears. You panic and redeem, locking in the loss.

The reality: Corporate bond funds have mark-to-market volatility. NAV moves daily based on bond prices.

Better approach: Invest with a minimum 2-3 year horizon. Short-term NAV drops don't matter if you're holding long-term. The coupon income eventually drives returns.

Corporate Bonds vs Corporate Bond Funds: Which Is Better?

You might be wondering: why not just buy individual corporate bonds instead of investing in a fund?

Here's the honest comparison:

When to Buy Individual Bonds

Individual bonds make sense if:

• You have ₹25 lakh+ to invest
• You want fixed, predictable returns
• You're comfortable researching credit ratings
• You'll hold till maturity (5-10 years)
• You want to structure specific cash flows (bond laddering)

When to Choose Bond Funds

Bond funds are better if:

• You're starting with ₹50,000 - ₹5 lakh
• You want flexibility to exit anytime
• You prefer professional management
• You want instant diversification
• You're investing systematically via SIP

For most NRIs, corporate bond funds are the practical choice. Learn more about direct bond investing in our comprehensive guide.

How to Evaluate a Corporate Bond Fund (Before You Invest)

Don't just pick a fund based on past returns. Use this checklist:

1. Check the Credit Quality

Open the fund's factsheet (available on AMC website). Look for "Portfolio Composition by Rating."

What to look for:

• 80%+ in AAA and AA-rated bonds
• Less than 10% in A-rated bonds
• Zero exposure to BBB or below

Red flag: If more than 15% is in A-rated or unrated securities, the fund is taking significant credit risk.

2. Assess Yield to Maturity (YTM)

YTM tells you the expected return if all bonds are held to maturity.

Current average: ~7.50% for the corporate bond category as of January 2025.

What to look for: Fund's YTM should be in line with category average (±0.5%)

Red flag: If a fund shows 9% YTM when category average is 7.5%, they're likely taking extra credit risk or duration risk.

3. Review Modified Duration

This measures interest rate sensitivity.

Typical range: 3-5 years for corporate bond funds

What it means: If duration is 4 years and interest rates rise by 1%, expect NAV to fall by roughly 4%.

When to be careful: Duration above 6 years means high interest rate risk. Only suitable if you're confident rates will fall.

4. Examine Top Holdings

Check the top 10 holdings (usually 30-40% of portfolio).

What to look for:

• Recognized names: HDFC, SBI, Reliance, Power Finance Corp
• No single company over 10% of portfolio
• Mix of sectors (banking, infrastructure, NBFC, manufacturing)

Red flag: Heavy concentration in one sector or unknown company names.

5. Compare Expense Ratios

Lower is better.

Direct plans: 0.20-0.40% Regular plans: 0.50-1.00%

Tip: For investments above ₹5 lakh, that 0.30% difference in expense ratio is ₹1,500 per year - ₹7,500 over 5 years. Choose direct plans.

6. Look at Consistency, Not Just Returns

A fund showing 10% return one year and 4% the next is riskier than a fund delivering steady 7-8% annually.

Check rolling returns (available on Morningstar or Value Research) to see consistency across different time periods.

👉 Tip: Use Belong's Compliance Compass to ensure your investment choices comply with all FEMA and RBI regulations for NRIs.

Rupee Depreciation Impact on Your Returns

Here's something most guides don't tell you: your INR returns don't matter as much as your USD/AED returns.

Let's say you invested $10,000 (₹8.3 lakh at ₹83/USD) in January 2024. One year later, your fund has grown to ₹9 lakh - a healthy 8.43% return in rupee terms.

But now the rupee has depreciated to ₹85/USD. When you convert back:

₹9 lakh ÷ 85 = $10,588

Your dollar return: 5.88% (not 8.43%)

The rupee depreciation ate into your returns. This happens because corporate bond funds are INR-denominated.

How to Manage Currency Risk

1. Monitor the rupee-dollar trend: Use our Rupee vs Dollar Tracker to see historical patterns and make informed decisions.

2. Hedge with USD assets: Keep 30-40% of your India portfolio in GIFT City USD FDs. When rupee falls, your USD assets gain in INR terms, offsetting losses.

3. Accept it as part of India investing: Over 10-20 years, rupee typically depreciates 2-3% annually against USD. Factor this into your expected returns.

4. Time your entry/exit: If rupee is at 82-83 levels (relatively strong), it's a good time to invest. If it's at 85+ (weak), wait for strength or deploy gradually via SIP.

Tax Harvesting Strategy for NRIs

Here's a smart tax-saving technique few NRIs use.

Remember that ₹2.5 lakh basic exemption? You can use it every year to minimize tax on debt fund gains.

How it works:

1. At the end of March, check your corporate bond fund investment
2. If you have unrealized gains close to ₹2.5 lakh, redeem just that amount
3. Your gain falls within the basic exemption = zero tax
4. The AMC deducts 30% TDS, but you claim full refund when filing returns
5. Immediately reinvest the same amount (or more)
6. You've now "reset" your cost base higher, reducing future tax

Example: You invested ₹10 lakh three years ago. It's now worth ₹12.5 lakh.

Year 1: Redeem ₹10 lakh + ₹2 lakh gain. Reinvest ₹12 lakh (after getting TDS refund).
Year 2: Your ₹12 lakh grows to ₹13 lakh. Redeem ₹12 lakh + ₹1 lakh gain. Reinvest ₹13 lakh.

Over 10 years, you save 5-20% tax on ₹25 lakh of gains = ₹1.25 lakh - ₹5 lakh saved!

Learn more about NRI tax filing and exemptions in our guide.

What If You Return to India?

Planning to move back permanently? Your corporate bond fund investments don't need to change - but you'll need to update your status.

Steps to Take When You Become a Resident Again

1. Update KYC status from NRI to Resident Indian with your AMC
2. Convert NRE/NRO accounts to regular resident savings accounts
3. Tax treatment improves: TDS drops from 30% to 10% on debt funds (if you're in lower slabs)
4. Continue investments: Your folios remain active; no need to redeem

Benefit: As a resident, if your total taxable income is under ₹7 lakh, your effective tax on debt fund gains is just 10-15%. Much better than the 30% TDS you paid as NRI.

Read our complete guide on returning to India with mutual fund investments.

Our Recommended Portfolio Mix for NRIs

At Belong, we don't believe in one-size-fits-all. But here's a framework that works for most NRIs in the UAE aged 30-45 with moderate risk appetite:

Conservative Portfolio (Low Risk Tolerance)

• 40% - GIFT City USD FDs (4.5-6% tax-free in USD)
• 30% - Corporate Bond Funds (7-9% returns, INR exposure)
• 20% - NRE Fixed Deposits (6.5-7.5% tax-free)
• 10% - Multi-Asset Funds (for some equity exposure)

Expected blended return: 6-7% (post-tax, considering currency risk)
Risk level: Low to moderate
Liquidity: Medium (50% accessible within 3 days)

Moderate Portfolio (Balanced Approach)

• 30% - GIFT City USD FDs (capital protection + currency hedge)
• 25% - Corporate Bond Funds (stable INR returns)
• 30% - Equity Mutual Funds (growth potential)
• 15% - Alternative Investment Funds in GIFT City

Expected blended return: 8-10% (post-tax)
Risk level: Moderate
Liquidity: High (60% accessible within 7 days)

Aggressive Portfolio (Higher Returns)

• 20% - GIFT City USD FDs (foundation layer)
• 15% - Corporate Bond Funds (stability)
• 50% - Equity Mutual Funds (growth focus)
• 15% - Direct equity or AIFs

Expected blended return: 10-14% (post-tax, long-term)
Risk level: Moderately high to high
Liquidity: High

In each case, corporate bond funds play a crucial role as the ballast - providing steady returns while reducing overall portfolio volatility.

Download the Belong app to build a customized portfolio based on your risk profile, goals, and timeline.

When to Exit a Corporate Bond Fund

Unlike equity funds where you "buy and hold forever," debt funds require active monitoring. Here's when to consider exiting:

Exit if Performance Consistently Lags

If your fund underperforms its benchmark (Nifty Corporate Bond Index) and category average for 3 consecutive quarters, it's time to evaluate.

Don't exit based on one bad quarter - interest rate movements can cause temporary underperformance. But consistent lagging signals poor fund management.

Exit if Credit Quality Deteriorates

Check quarterly factsheets. If the fund's exposure to AAA/AA-rated bonds drops from 90% to 75%, with increased A-rated or BBB-rated holdings, the manager is chasing yield by taking higher credit risk.

This is a red flag. Exit before a potential default impacts NAV.

Exit if Your Goals Have Changed

You invested in corporate bond funds for your child's education 5 years away. Now it's 6 months away.

Time to exit: Move to liquid funds or ultra-short duration funds. You can't afford any volatility now.

Exit if Better Alternatives Emerge

If GIFT City FDs start offering 6% in USD (tax-free), that might be better than 8% in INR (taxable at 30%) after considering currency risk.

Run the numbers. Compare post-tax, post-currency risk returns.

Don't Exit Just Because of Negative Returns

If your fund shows -1% returns in one quarter due to rate hike fears, don't panic. This is normal interest rate volatility. The fund will recover as bonds mature and get replaced with higher-yielding ones.

👉 Tip: Set quarterly calendar reminders to review your bond fund investments. Takes 15 minutes every 3 months - worth the effort to stay on top of your money.

The Role of Corporate Bond Funds in Your Overall Strategy

Let's step back and see the bigger picture.

You're an NRI building wealth across multiple goals: retirement, children's education, buying property in India, maintaining an emergency fund, and maybe returning to India eventually.

Corporate bond funds fit into this mosaic as your stability layer - investments that don't spike up 30% or crash 30%, but steadily deliver 7-9% while you sleep.

Think of your portfolio as a pyramid:

Base layer (40-50%): Capital protection + tax efficiency

• GIFT City FDs
• NRE FDs
• Government bonds

Middle layer (30-40%): Steady returns + liquidity

• Corporate bond funds ← You are here
• Short-duration debt funds
• ​Hybrid funds​

Top layer (10-30%): Growth + wealth creation

• Equity mutual funds
• Direct stocks
• Real estate (with caution)

Corporate bond funds bridge the gap between "too safe, too low returns" (FDs) and "too risky" (equities). They're the Goldilocks zone for the middle portion of your portfolio.

Final Thoughts: Is This Right for You?

Corporate bond funds aren't flashy. They won't double your money in 3 years. They won't give you WhatsApp forward-worthy returns to brag about.

But here's what they will do:

• Deliver 7-9% annual returns with reasonable consistency
• Give you full liquidity unlike FDs
• Provide professional management of credit risk
• Allow full repatriation from NRE accounts
• Diversify your portfolio beyond equities and fixed deposits
• Generate steady cash flows through SWP if needed

They're ideal for the conservative to moderate NRI investor who values sleep over excitement.

At Belong, we've seen both extremes - NRIs who put 100% in equity and panic during corrections, and those who keep 100% in FDs earning 6.5% while inflation eats away purchasing power.

The smart approach? A balanced mix where corporate bond funds play a supporting role alongside GIFT City investments and selective equity exposure.

Ready to explore?

1. Compare NRI FD rates vs corporate bond fund returns
2. Check your residential status for tax purposes
3. Join our WhatsApp community where we discuss NRI investment strategies daily
4. Download the Belong app to access GIFT City investments alongside traditional options

Remember: the best investment strategy is one you understand, can stick with through market cycles, and aligns with your specific goals and tax situation.

Corporate bond funds check these boxes for many NRIs. The question is - do they for you?

Sources:

Value Rearch.com

INDmoney - Best Corporate Bond Funds

Angel One - Corporate Bond Funds Performance

Scripbox - Best Corporate Bond Mutual Funds 2025

HDFC Mutual Fund - Corporate Bond Fund Details

GRIP Invest - Best Corporate Bond Funds India 2025

Aspero - Best Corporate Bonds in India 2025

Belong - NRI Mutual Fund Taxation Guide

DBS Treasures - Capital Gains Tax for NRIs 2025

Disclaimer: This article is for educational purposes only and does not constitute financial advice. Mutual fund investments are subject to market risks. Past performance does not guarantee future returns. Please consult with a SEBI-registered investment advisor and read all scheme-related documents carefully before investing. Tax laws are subject to change; verify current rates with a qualified tax consultant.