Corporate Bond Funds: A Complete Guide for NRI Investors

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.