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Bond Funds

Beginner's Guide to Corporate Bond Mutual Funds

Chris Dumont Jan 08, 2015



Junk bonds, those rated BBB- and lower, have a higher risk of default, but they pay higher yields than investment grade corporate bonds. Regardless of the type, corporate bond mutual funds allow for investors with smaller portfolios to gain exposure to this asset class, and can provide a well-diversified high yield corporate bond portfolio at a low cost.

Be sure to read our Beginner’s Guide to Bond Mutual Funds.


How Corporate Bond Funds Can Be Used in a Portfolio


With an individual bond, risk decreases the longer you hold the security, but this is not true with corporate bond funds because the individual holdings are constantly maturing, being bought and sold. There are many different kinds of corporate bond funds with different risk/return profiles that can cater to a variety of different investor appetites.


Types of Corporate Bond Funds


  • Broad-based: These cover a variety of different corporate bonds, everything from investment grade to junk, domestic and foreign. These are good for investors wanting a little bit of everything that corporate bond funds have to offer.
  • Domestic: Those originating from an investor’s home country.
  • Foreign: This includes bonds that are issued and traded outside the country in whose currency they are denominated, and U.S. dollars held by foreign institutions outside the United States. These can include eurobonds and eurodollar bonds.
  • Sector Specific: As there are many different types of corporations, investors can buy bond funds in corporations in specific sectors, such as energy.

See also our Beginner’s Guide to Municipal Bond Mutual Funds.


Benefits of Owning Corporate Bonds with Mutual Funds


Furthermore, bond mutual funds never mature like a single corporate bond would; as corporate bonds mature within the portfolio they are replaced with others. Another benefit is that corporate bond mutual funds give you access to the expertise of a portfolio manager. With these benefits, investors looking to gain exposure to corporate bonds should at least consider a corporate bond mutual fund.


Tax Considerations


Be sure to see the 7 Essential Tax Tips for Mutual Fund Investors.


Most Popular Corporate Bond Mutual Funds


  • BlackRock Allocation Target Shares Series C (BRACX)
    This fund seek to maximize total return, investing in corporate bonds, notes and debentures; asset-backed securities; commercial and residential mortgage-backed securities; U.S. Treasuries; and cash equivalent investments.
  • BMO TCH Corporate Income Fund (MCIIX)
    The fund invests at least 80% of its assets in corporate debt securities, including convertible debt securities. Although it will invest primarily in U.S. dollar denominated securities with a minimum rating in the lowest investment grade category at the time of purchase, the fund may invest up to 20% of its assets in debt securities that are below investment grade, also known as high yield securities or “junk bonds,” and non-U.S. dollar denominated foreign debt securities
  • PIMCO Long-Term Credit Fund (PTCIX)
    The fund normally invests at least 80% of its assets in a diversified portfolio of fixed-income Instruments of varying maturities, which may be represented by forwards or derivatives such as options, futures contracts or swap agreements. It invests primarily in investment grade debt securities, but may invest up to 20% of its total assets in junk bonds that are rated B or higher by Moody’s, or equivalently rated by S&P or Fitch, or, if unrated, determined by PIMCO to be of comparable quality.
  • GuideStone Funds Extended-Duration Bond Fund (GEDYX)
    The fund invests mainly (at least 80% of its net assets, plus borrowings for investment purposes, if any, and typically more) in fixed-income securities. It may hold up to 30% of its assets in obligations denominated in currencies other than the U.S. dollar, and may invest beyond this limit when considering U.S. dollar-denominated securities of foreign issuers.
  • Vanguard Long Term Investment Grade Fund (VWESX)
    The fund invests in a variety of high-quality and, to a lesser extent, medium-quality fixed income securities, at least 80% of which will be intermediate- and long-term investment-grade securities. High-quality fixed income securities are those rated the equivalent of A3 or better; medium-quality fixed income securities are those rated the equivalent of Baa1, Baa2, or Baa3.


The Bottom Line


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