Published Jul 2, 2026 4 Min Read

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Introduction

Corporate bond funds and gilt funds are both debt mutual funds, but they invest in different types of securities. Corporate bond funds mainly invest in high-quality corporate bonds, while gilt funds invest only in Government of India securities. Your choice depends on whether you prioritise credit quality, interest rate risk, or return potential.

  • Corporate bond funds primarily invest in highly rated corporate debt securities. 
  • Gilt funds invest only in government securities and therefore carry no credit risk. 
  • Both fund types are affected by changes in interest rates. 
  • Most debt mutual funds are available through SIP and lumpsum investment modes. 
  • SIP investments start from Rs. 100 per month for most schemes on the platform. 
  • You can choose from 4,000+ mutual fund schemes across equity, debt, hybrid, ELSS, thematic, and NFO categories. 

Complete your mandatory KYC and compare debt mutual funds on the Bajaj Broking website before selecting the option that suits your financial goals.

What is a gilt fund?

A gilt fund is a debt mutual fund that invests only in securities issued by the Government of India. Since these securities are backed by the government, gilt funds generally do not carry credit risk.

However, gilt funds are still affected by changes in interest rates. When interest rates rise, the value of existing government securities may fall, which can affect the fund's NAV.

Gilt funds may be suitable if you:

  • Want exposure to government securities. 
  • Prefer low credit risk. 
  • Can remain invested for the recommended investment horizon. 
  • Understand that returns are market-linked and not guaranteed. 

What is a corporate bond fund?

A corporate bond fund is a debt mutual fund that mainly invests in highly rated corporate bonds issued by companies. According to SEBI regulations, these funds invest predominantly in the highest-rated corporate debt instruments.

Although corporate bond funds generally have low credit risk because of their investment mandate, they are still exposed to credit and interest rate risks. Their returns depend on market conditions and the performance of the underlying bonds.

Corporate bond funds may be suitable if you:

  • Want relatively stable income potential. 
  • Prefer investing in highly rated corporate debt. 
  • Have a medium- to long-term investment horizon. 
  • Are comfortable with moderate interest rate risk. 

Corporate bond fund vs Gilt fund: Key differences

Although both are debt mutual funds, they invest in different securities and carry different types of risk. Understanding these differences can help you choose the option that aligns with your financial goals.

FeatureCorporate Bond FundGilt Fund
InvestmentsMainly high-rated corporate bondsGovernment of India securities
Credit riskLow, but not zeroNo credit risk
Interest rate riskPresentPresent and often higher
IssuerCompaniesGovernment of India
Return potentialDepends on corporate bond yields and market conditionsDepends mainly on interest rate movements
Suitable forInvestors seeking relatively stable debt investmentsInvestors seeking government-backed debt exposure

The main difference between corporate bond fund vs gilt fund is the type of securities they hold. Corporate bond funds focus on highly rated corporate debt, while gilt funds invest only in government securities.

Gilt funds vs Corporate bonds: Features

Both fund types have distinct characteristics. Comparing their features can help you understand how they fit into your investment portfolio.

FeatureGilt FundsCorporate Bond Funds
Securities heldGovernment securitiesHigh-rated corporate bonds
Credit qualitySovereign-backedHigh-quality corporate issuers
Credit riskVery lowLow but present
Interest rate sensitivityUsually higherModerate to high
Income sourceInterest from government securitiesInterest from corporate bonds
Risk levelDepends mainly on interest rate movementsDepends on both credit quality and interest rates

SEBI requires every mutual fund scheme to display a Riskometer showing its risk level as Low, Low to Moderate, Moderate, Moderately High, High, or Very High. You should always check the Riskometer before investing in any debt mutual fund.

Gilt funds vs Corporate bonds: Returns comparison

There is no fixed winner when comparing the return potential of gilt funds and corporate bond funds. Returns depend on interest rate movements, bond yields, portfolio maturity, and market conditions.

FactorGilt FundsCorporate Bond Funds
Return driverGovernment bond prices and interest ratesCorporate bond yields and interest rates
Credit risk impactMinimalLow but present
Interest rate impactHigherModerate to high
Return guaranteeNoNo

Both gilt funds and corporate bond funds are market-linked investments. Past performance does not guarantee future returns, and neither fund type offers assured returns.

Corporate bond fund vs Gilt fund: Which is better for you?

There is no universally better option. The right choice depends on your investment objective, time horizon, and comfort with different types of risk.

You may consider a gilt fund if you:

  • Prefer government-backed securities. 
  • Want to avoid credit risk. 
  • Understand that returns may fluctuate with interest rate changes. 
  • Have a medium- to long-term investment horizon. 

You may consider a corporate bond fund if you:

  • Prefer investing in highly rated corporate debt. 
  • Are comfortable with limited credit risk. 
  • Want exposure to corporate bond markets. 
  • Seek relatively stable income potential over the medium term. 

On the Bajaj Broking website, you can compare 4,000+ mutual fund schemes across equity, debt, hybrid, ELSS, thematic, and NFO categories. After completing your mandatory KYC, you can invest through SIP or lumpsum. SIP investments start from Rs. 100 per month for most schemes.

Conclusion

The corporate bond fund vs gilt fund comparison comes down to the type of debt securities you want in your portfolio. Gilt funds invest only in Government of India securities and eliminate credit risk, while corporate bond funds primarily invest in highly rated corporate debt and may offer different return opportunities depending on market conditions.

Before investing, compare the investment objective, portfolio, interest rate sensitivity, credit quality, and SEBI Riskometer of the scheme. On the Bajaj Broking website, you can explore 4,000+ mutual fund schemes, complete your mandatory KYC, and invest through SIP or lumpsum. SIP investments start from Rs. 100 per month for most schemes.

Frequently asked questions

What is the best time to invest in gilt funds?

The best time to invest in gilt funds depends on your financial goals and outlook on interest rates rather than market timing. Since gilt funds invest in government securities, their returns are influenced by interest rate movements. You should choose a fund that matches your investment horizon instead of trying to predict short-term market changes.

Are gilt funds safer than corporate bonds?

Gilt funds generally have lower credit risk because they invest only in Government of India securities. However, they are still exposed to interest rate risk, which can cause their NAV to fluctuate. The Bajaj Broking website allows you to compare different debt mutual funds before investing.

Who should invest in corporate bond funds?

Corporate bond funds may suit investors seeking exposure to highly rated corporate debt with a medium- to long-term investment horizon. Although these funds generally invest in high-quality issuers, they remain subject to interest rate risk and some credit risk. Always review the SEBI Riskometer before investing.

How are gilt funds and corporate bond funds taxed in 2026?

Both gilt funds and corporate bond funds are taxed according to the prevailing income tax rules applicable to debt mutual funds in 2026. Since tax regulations can change, you should refer to the latest government guidelines or consult a qualified tax adviser before making investment decisions. The Bajaj Broking website provides access to debt mutual funds from multiple AMCs.

Can I invest in both gilt funds and corporate bond funds together?

Yes. You can include both gilt funds and corporate bond funds in your portfolio if they match your financial goals and risk profile. Combining different debt fund categories may help diversify your fixed-income investments while maintaining exposure to different types of debt securities.

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