Public and private corporations issue several bonds known ascorporate bonds. Corporates offer debt securities for the purpose of raising money and often require money for various purposes like business growth, building a new plant or even for purchasing equipment.
The term corporate bond is used for debt instruments that have a longer duration, of which the maturity date is usually more than twelve months. Debt instruments with tenure of less than twelve months are called commercial paper. Investors highly prefer corporate bonds, as, in terms of total face value of bonds outstanding, the market is bigger than any other.
Returns offered by these bonds are alluring and thus fetch a large number of potential investors. Compared to government bonds, investment in corporate bonds involves high risks and they are listed across the leading stock exchanges of the globe.
Sometimes, all of the bonds that are not issued by government are labeled corporate, however, only the bonds issued by corporations should be termed as “corporate bonds”.
Capital bonds can be both types mentioned below:
High yield bonds
Fixed rate capital securities
Investors usually eye for higher interest rates, and for this reason corporate bonds are in high demand. Few offer monthly coupons and this is a major point of attraction for potential investors, although they have higher risks of default. Traded in most of the developed trading markets in a decentralized way, there are several dealers and agents that offer corporate funds; over the counter trading is also in fashion. Interest earned is subject to state income tax regulations and, similarly, initial investments are also subject to state and federal income tax rules.
While purchasing these bonds, investors get a wide range of options, but purchase, however, depends upon the following factors:
In the case of purchase, it is necessary to have in-depth knowledge about corporate bonds.
Indices indicate momentum of the bonds and after proper benchmarking, clubbed with systematic analysis, financial analysts and professional financial service providers are offering clear overviews.
Last Updated on : 10th July 2013