Debt Corporate

 

 

Debt corporate bond or corporate bond is a debt instrument that corporations use to raise funds for their business expansion or other purposes. The issuers will payback the principal amount and the accrued interest to the investors upon maturity. Usually,  corporate bonds have a maturity period of a year or more. Debt corporate bond, with a shorter maturity period, is called commercial paper. Most of the corporate bonds are taxable and supposed to be declared. More importantly, the yields from corporate bonds are higher than government bonds or US Treasury bonds.[br]

Debt Corporate Bonds: What You Need to Know

Whatever the type of corporate bonds you plan to invest in, the following are some factors to take into consideration:

• Be sure about the definite maturity period of the debt corporate bonds, upon which the issuer promises to payback the bondholders.

• The issuing corporation should promise you a tax-exempt or taxable income at regular intervals throughout the life of the bond based on the promised coupon rate.

• Understand that the yield or the return on investment can be lower or higher than the face value.

• The yield is a function of the coupon rate and the price of the bonds.

• Review ratings issued by reputed agencies such as Standard and Poor and Moody’s and Fitch. Their rating indicates the issuer’s overall creditworthiness and helps you to decide whether the bond is worth investing in.[br]

Debt Corporate Bonds and Bond Funds

Bond funds, that include mutual funds, exchange traded funds and unit investment trusts, offer an affordable and convenient method to invest in a diversified portfolio of bonds. However, investing in corporate bonds directly can vary from investing in a bond fund. Actually, you buy shares in a portfolio of bonds when you buy a bond fund. Bond funds offer quarterly or monthly dividend payments, whereas bonds offer semiannual or annual interest income. The price of a bond fund is based upon the NAV or the market value of the portfolio divided by the number of shares outstanding.

Investing in corporate bonds directly is a good option for risk-takers. Bond funds are known to have lesser risks due to the diversification benefit they are associated with. Even if one bond is not doing well during the investment period, others may compensate. Moreover, you can get monthly or quarterly dividend in case of bond funds.