What are corporate bonds and how can you invest in them?
There are quite a few options that you have for making an investment in the corporate bonds. Highly-rated corporate bonds can assure a steady flow of income over the life of the bond
A corporate bond is a debt issued by a company to raise capital. The investor who purchases the bond is actually lending the money to the company. The company gets its needed capital and in return, it pays the investor a pre-established number of interest payments at either a fixed or variable rate. After the bond expires or reaches its maturity, the interest payments end and the original investment is returned. This is a way to invest in some of the best companies of India without purchasing their listed equity shares. Corporate bonds save you from market volatility and ensure that your capital remains safe.
How can one invest in corporate bonds?
Here is a list of options that you have for making an investment in corporate bonds:
Option 1: Primary issues
You can subscribe to primary issues, but they are floated mostly via private placements and public issues are rare.
Option 2: Bond houses or other intermediaries
The available inventory of corporate bonds will be shown to you by bond houses or other intermediaries. These transactions are usually in sizes appropriate for high-net-worth individuals.
Option 3: Exchanges
The third option one has is to buy bonds from the National Stock Exchange, the Bombay Stock Exchange, or a broker.
Option 4: Online bond platforms
Online bond platforms showcase the corporate bonds’ available inventory.
Minimum amount required for the investment:
The minimum lot size for the deals is usually around Rs 2 lakh.
Ratings and risk:
There is no corporate bond which is entirely risk free. But highly-rated corporate bonds can assure a steady flow of income over the life of the bond. The rating of these bonds is done by the three major bond rating agencies, namely Standard & Poor’s, Moody’s, and Fitch. Bonds with ratings ranging from AAA or Aaa to BBB or Baa are considered to be safe for investment. Bonds with BB or Ba rating and bonds which are not rated are called junk bonds. These bonds are considered to be risky, but they have higher yields.