What's the Difference Between Corporate Bond Funds and FDs?

Corporate bond funds with professional management provide daily liquidity and potentially higher investment returns, i.e., 7-9%, but have NAV fluctuations. Additionally, corporate bond funds, regardless of the holding period, are taxed at the income tax slab rate of NRIs. In contrast, NRE FDs provide guaranteed returns, generally 6.5 to 7.5%, with tax-free interest. However, these have fixed locked-in periods and penalties on premature withdrawal.

Investment & Financial Planning

Corporate Bond Funds: A Complete Guide for NRI Investors

By Pankaj Shaw |Last Updated: January 23, 2026

Corporate Bond Funds: A Complete Guide for NRI Investors

For NRIs seeking stable returns and with minimal risks, corporate bond funds have become a popular investment choice in India. These investment options are considered one of the safest ways to generate fixed income. Additionally, these offer steady interest, further creating reliable passive income.

Want to know more about corporate bond funds and why NRIs should invest in them? Read the blog and explore everything about the topic, from what it is to how to invest in it.

Pankaj Shaw(Tax Expert)

Mr Shaw brings 8 years of experience in auditing and taxation. He has a deep understanding of disciplinary regulations and delivers comprehensive auditing services to businesses and individuals. From financial auditing to tax planning, risk assessment, and financial reporting. Mr Shaw's expertise is impeccable.

Frequently Asked Questions

Compared to equity funds, yes, corporate bond funds are safe for NRIs. However, they are not free from risk like fixed deposits. The safety of these investments depends on the credit quality- 80%+ in AAA and AA-rated bonds contains minimal default risk. However, due to changes in interest rates, in the short term, the NAV can fluctuate.

No, corporate bond funds do not provide monthly income. These investments are growth-oriented, reinvesting interest income. However, if you want a monthly cash flow, you can opt for a Systematic Withdrawal Plan (SWP) to get fixed units monthly, offering a pseudo stream of income.

When the RBI raises the interest rates, the prices of bonds fall, resulting temporary NAV decline. However, the bonds are constantly earning coupon income (7-9%), which offsets price losses gradually. Over 2 to 3 years, stabilize as old corporate bonds mature and are replaced with higher-yielding new bonds.

Since April 1, 2023, capital gains from all debt mutual funds, including corporate bond funds, are taxed as per the income slab rate of the investor, regardless of the holding period. Additionally, during the redemption, NRIs are liable to pay 30% TDS. However, if the actual tax liability is lower, they can claim a TDS refund when filing ITR.

Yes, you can repatriate both principal and capital gains fully without any limitation if you invested through an NRE account. However, if you invested through NRO accounts, you can repatriate up to USD 1 million per financial year, including all the investments. Additionally, also need to submit documents like Form 15CA/ 15CB.

Corporate Bond Funds: A Complete Guide for NRI Investors

Frequently Asked Questions

Are Corporate Bond Funds Safe for NRIs?

Do Corporate Bond Funds Give Monthly Income?

What Happens to Corporate Bond Funds When Interest Rates Rise?

What is the Taxation on Corporate Bond Funds for NRIs?

Can I Repatriate My Corporate Bond Fund Investment Abroad?

Corporate Bond Funds: A Complete Guide for NRI Investors

Frequently Asked Questions

Are Corporate Bond Funds Safe for NRIs?

Do Corporate Bond Funds Give Monthly Income?

What Happens to Corporate Bond Funds When Interest Rates Rise?

What is the Taxation on Corporate Bond Funds for NRIs?

Can I Repatriate My Corporate Bond Fund Investment Abroad?