A corporate bond is a debt security issued by a corporation and sold to investors. The backing for the bond is usually the ability of the company to repay the borrowed amounts, which is the money that is earned from profits and future operations. Sometimes, the company's physical assets are pledged as collateral. Corporate bonds are debt securities, issued by both private and public corporations. Companies issue corporate bonds to raise money for a variety of needs, such as building a new plant, purchasing equipment, or growing the business.
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Corporate bonds are debt securities issued by private and public corporations. When an investor buys a corporate bond he/she lends money to the "issuer," the company that issued the bond. In exchange, the company promises to return the money, also known as "principal," on a specified maturity date. Until that date, the company usually pays you a rate of interest, generally semi annually.
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Corporate Bonds can be broadly classified in the following categories. Listed below are the types of bond and their sub categories:
Based on Maturity Period:
Based on Coupon:
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In India, an investor who wants to purchase bonds must have a Demat account. A Demat account enables the user to purchase and hold the bonds in an electronic format. In India, you can buy corporate bonds in the following ways:
Yield is a tool that is used to measure the amount of returns the investor gains from one bond against another. It enables one to make informed decisions on which bond to buy. In essence, yield is the rate of return on bond investment. However, it is not fixed, like a bond's stated interest rate. It changes by reflecting the price movements in a bond caused by fluctuating interest rates.
The advantages of corporate bonds are as follows:
The disadvantages of corporate bonds are as follows:
Corporate bonds are considered to have a higher risk than government bonds. As a result, interest rates are almost always higher on corporate bonds.
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