Corporate bonds are similar to treasury bonds, it is a form of interest bearing security. It is an excellent opportunity for the investors who want to see their money grow. Corporate bonds are offered by public as well as private corporations. It is a debt security handed out by a firm to raise fund. The maximum value of corporate bonds is Rs.2 lacs per transaction. With the advent of technology, corporate bond can be procured from online. Numerous online brokers are available who assist you procure corporate bonds. If you are wondering about Where Can I Buy Corporate Bonds Online? Then exploring this article enlighten your path.
What are corporate bonds?
Corporate bonds are generally issued by companies or organisations. By issuing corporate bonds, companies get the access to cash deprived of diluting ownership through additional stock issues or from taking a loan. When it comes issuing corporate bond, it can either traded publicly or else in private.
In general, there are two main categories available in corporate bonds. They are listed below.
- New issue
New issue bonds are freshly created one and it is available in primary market. The new issue bonds are brought for fixed initial offering price.
- Secondary market or Over The counter (OTC)
Secondary market or Over The Counter (OTC) possess leftovers from primary market.
The primary market is generally exclusive and it has established relationship with financial institutions. It is mostly available for financially privileged investors because new issue bond difficult to reach for. The investors don’t match up with this description starts to look for a brokerage firm. The assistance of brokerage firm helps you purchase corporate bonds. Secondary market/OTC offering is ideal for average investors.
The money procured from issuing corporate bond are sourced for the development of the firm. The development process encompasses procuring new assets or facilities, investing in R&D, refinancing etc.
Corporate bond fund is generally suited for investors who seek fixed, safe as well as higher income option. It is one of the low risk investment options when compared to the debt fund. Capital protection is the most alluring feature and investors are roped in because their capital investment stays still. Investing in high calibre debt instruments of corporate bond funds will surprise the investor as it serves the financial goals better.
Fluctuations in market often makes long term debt fund a riskier option. But the corporate bond fund fights volatility and it is the main reason behind investors interest in corporate bonds.
Buying and selling corporatebonds:
Buying corporate bonds are easy as investing in equity market. Check out brokerage firms, banks, bond traders and brokers to fish out the best option available in corporate bonds. But they takes commission for facilitating the sale.
Corporate bonds can be traded on OTC (Over The Counter) market and also gives good liquidity. If you wondering what liquidity is, it is the ability to sell the bond for ready cash with short span of time.
Corporate bond characteristics:
Corporate bonds are one of the reliable source of income and it rewards investor with the best in the industry standard. If you are up to invest in corporate bonds, understanding few things is prominent such as interest rates and how they rated to pricing etc.
- Numerous things influence bond rating calculations such as financial stability, current debt as well as growth potentials. The ratings are the best way to understand whether bond issuer repay the debt or will default on its obligation.
- Check out the newspaper and publications to fish out the bond prices. The prices listed are mostly from recent trade. But one thing to understand is, the prices of the bond will fluctuate and market condition will also change with respect to the various conditions.
- Interest rates increases with the decline of bond price. In general, bond costs less whereas interest rate remains still like its initial offering. If bond price goes up, effective yield declines accordingly. The financial stability and profitability will change with time and will never remain same as it was in the time of your investment. To balance the risk, stick to the bond with longer maturity dates with high interest.
Types of corporate bonds:
After understand what corporate bond is, its characteristics, the idea of investing starts to sprout inside you. If so, then understanding the types available on corporate bonds are also prominent.
Organisations or corporations usually doesn’t issue the bonds directly to the investors. They collaborate with investment bankers and other financial institutions to get their bonds on primary or secondary markets. The sub categories of the corporate bonds are listed below.
- Fixed rate:
Fixed rate corporate bonds are ideal for the investors who expects consistent returns such as monthly, quarterly, bi-annual or annual basis. Pay out in fixed rate corporate bonds are depends mainly on the bond investor brought but the interest rate never changes. The fixed payment you get by investing in this bond is dictated by a percentage of bond’s value.
- Variable rate:
As the name itself suggest the interest rate varies once every year. This is exactly opposite of fixed rate. Variable rate corporate bonds are not stand by arbitrary percentage. It is aligned with certain interest rate benchmark. Compared to fixed rate bonds, it is less reliable but has the potential to bring up better returns. Yes, higher the risk, better the returns.
Most of the corporate bonds includes regular interest payments such as it pays you when the bond maturity. It is usually cheaper in its price but you can expect any return until the final maturity date come to light. Discount on this bond is always desirable but the long term style of zero coupon is prone to volatility. If you are investing on zero coupon, make sure you understand how things works and then move forward to the procedures of investing.
These are the common types of bonds you can figure out in the market.
Features of corporate bond funds:
Corporate bond possess various features and they are explained below.
Components of Corporate bonds
Corporate bond funds usually invest in debt papers. Firms that issue debt paper also includes bonds, commercial papers, structured obligation and debentures. The corporate bonds possess unique risk profile and maturity date.
- Price of the bond:
The bond price varies in price and its dynamic is also differs. The same bond may differs in price at different time. Keeping an eye on how price differs with par value is vital as it enlightens you the information about market movement.
- Par value of the bond:
Par value of the bond is the amount the bond issuer will gives you at the time of bond reaches its maturity.
Coupon is the interest paid by the company when you invest in their bond. They pay interest until you exit the bond or if its final maturity came to light. The interest is mainly depends on specific percentage of par value.
- Current yield:
The annual return from the bond is called as current yield.
- Yield to maturity:
Yield to maturity is the in-house rate of return from all the cash flows in the bond as well as present bond price, coupon payments.
Short-term capital gain tax must be paid when investor holds the bond for more than three years. In general, the tax is based on your tax slab.
- Exposure and allocation:
Corporate bond funds takes small exposures to government securities. When no suitable opportunities in credit space available, they takes small exposures to government securities.
Investing in corporate bonds:
When it comes to investing in corporate bonds, it is mandatory to know about risk and returns encompassed in it. It is mainly depends on the economiccircumstance of companies that issues them to investor. If you are up to taking up long term investment, corporate bonds are the best option. The investors will earn good returns and its interest gets added in the future.
Every investment encompasses some risk factor. Higher the risk, better the returns is the working mantra in investment world. So, if you are investing in corporate bonds, it is mandatory to keep an eye on few things and they are listed as follows.
- Chasing bonds on open market is not a worthy suggestion especially for novice investors. Experts do suggests sticking to brokerage firms when you have decided to invest in corporate bonds. Searching them on online eases the path of fishing out a brokerage firm. The firm you choose must open the door to broader selection of either controlled bonds or company owned bonds.
Every bonds has maturity dates and it commonly ranges from two to five years. In general, long term bonds possess low interest and short term bond are better protected from fluctuations since it reflects in interest rates. Short term bond also matures in shorter duration of time and it save money on a commission as there is no longer necessary to market through a stockbroker.
Corporate bond investment then and now:
Before the emergence of technology, investing in bonds is a crucial task and it encompass various other process. A potential investor should call a broker to get the list of corporate bonds available along with its price. The chances for the individual investors to understand whether they are getting a fair price or not is less. But now time has changed as well as things around us. Technology have brought many changes so far. Nowadays, just few taps is what it takes to learn all the information about the investment. When buying corporate bonds from online, it is possible to scrutinize necessary information such as number of dealers are handing out biding offer quotes. It is just a piece of cake to compare the bond available and make a well informed decision.
The emergence of internet has eased the path of finding the best option on corporate bonds. Spending a short span of time, a potential investor can reach the best option they have.
Why buy bonds online?
Many investors do wonder why they should buy bonds online. The reasons to prefer online are listed below.
Buying corporate bonds from online also incorporate various benefits. Some of them are listed as follows.
- Scrutinize maximum amount of corporate bond quotes and abate bid-offer spreads
- Rapid as well as effectual trade execution
- Pay lowest fees
- Transparent and fairness
Compared to other options of buying corporate bonds, online offers higher transparency and fairness. It lures many potential investors as it seems reliable and dependable. Nowadays, bond investing is shape shifted to technology enabled market place. Investors can execute trades at bond price. This is why investor should stick to online options of buying corporate bonds from online.
Things to remember before investing in Corporate bond funds:
Before investing in corporate bond funds, there are few things mandatory to remember.
- In Corporate bond funds, investments are invested in corporate debenture and bonds of medium to long-term contract. This is ideal for long-term investment option. So, if you are up to long term investment, then go for it.
- When investing in corporate bond funds, some market knowledge is essential. Since potential risk is involved with, investors with fair knowledge of debt fund has higher probability to shine in the arena.
- Large number of defaults inside portfolio leads you to face severe drag in your overall yields.
- Sticking to large AMC’s preferably the top five funds is wise option for the investors. Experts do suggest the novice to stay off from high-rated short term debt fund with lower credit risk as it avoids bad experience.
Keeping the above mentioned things assist you make well informed decision when you are planning to invest in corporate bonds.
I hope this article had passed the light you were searching for and enlighten you with everything you need to know about corporate bond funds.