What are the differences between these two debt mutual funds?

Corporate bond funds are better than credit opportunities funds. Corporate bond funds are less volatile,. The returns in this category is around 4.7% last year. If you want to invest for a minimum three years with less risk instrument, then these Corporate bonds may be good for you.

Presently many people are opting for the following corporate bond funds.

1. Kotak Corporate Bond Fund
2. ICICI Prudential Corporate Bond Fund
3. Aditya Birla Sun Life Corporate Bond Fund
4. HDFC Corporate Bond Fund

These two bonds have a subtle difference between them and that is mainly the risk perception. Before coming to that, first let us understand the interest patterns and market value of these bonds. Generally these bonds are issued with a slightly higher interest than that of the interest offered on the FDs by the banks. This attracts prospective investors to move from bank FD to these products. So when these bonds appear lucrative investment options their price also increases in the market and it gives additional opportunity to the investor to sell them at such opportune times. Sometimes the demand for these bonds slack due to many economic factors and their market value goes below their issue price. This is the time when the shrewd investors and mutual funds invest in them to increase their return on investment. It is apparent that if the purchase value of the bond from the market is lower than the issue value then the effective interest rate (known as coupon rate also) will increase.

Now these bonds are having their credit ratings which tell us which one are more riskier and which are less riskier. The Mutual funds having nomenclature of Corporate Bond fund generally invest in the good rating corporate bonds while the other category Credit Opportunity funds invest generally in more riskier corporate bonds which are available for low value in market. So return may be more but the risk of default is also more.

So, as I mentioned earlier the difference between these two is only the risk perception. I will prefer to invest in the first category where returns are adequate and risk is lower.

When there is frequent revision of the interst rate in the Banks, Investors would like to have some safe instruments yielding returns greater than the prevailing interest rate to be acrued by way of fixed deposits made for a particular tenure.
While talking about Corporate fund, this being an open ended fund has the potential to offer the attractive rate of rate of interst( somewhat better than the rate of fixed deposit) with a low risk. Investment in this instrument would appreciate your money with a low risk.
Credit oppurtunities funds are the riskier funds in the sense that fund managers invest money In some low risk funds with the anticipation of substantial growth of the funds in the future. Hence it is a high risky fund with the possibility of huge surge in future.