WHY YOU SHOULD INVEST IN CORPORATE BONDS

1. WHY YOU SHOULD INVEST IN CORPORATE BONDS The concept of corporate bonds is quite simple. A corporation issues bonds to fund their operations such as opening a new factory, expanding the business, etc. These types of bonds basically form the basis of credit opportunities debt funds i.e. when an investor invests in a corporate bond, the company owes them money. Types of Corporate Bonds Corporate bonds can be short term bonds, long term bonds or intermediate in nature. Short term bonds typically pay lower yields. This is based on the idea that a company is much less likely to default in a three year period than over a 30 year period where investors have much less visibility into the future. Conversely, long term bonds offer higher yields but they tend to be much more volatile. Most corporate bonds are short term bonds that go into an investment horizon of 1-4 years. Corporate bonds are a good choice for investors who are looking for a fixed but higher income from a safe avenue. They also have more weightage than low-yield government bonds and contribute to and serve your financial goals. What are the reasons that one should invest in corporate bonds? ●Dependable Income: Investors who want a steady income from their investments, while preserving their principal, can include corporate bonds in their investment portfolios. ●Components of Corporate Bonds: Corporate bond funds invest significantly in debt paper with each component carrying a unique risk profile and maturity date. Companies issue the debt papers which include bonds, debentures, commercial papers and structured obligations. ●Yield to Maturity (YTM): This is the terms for the rate of returns of all the cash-flows in the corporate bond, the present bond price, the interest payments till maturity and the principal. Greater the YTM, higher will be your returns and vice versa. ●Marketability: If you must sell a bond before maturity, in most cases, you can do so easily and quickly because of the size and liquidity of the market. ●The Comparison withGovernment Bonds: Similar to the point mentioned before, corporate bonds (whether they are short term bonds or long term bonds) are more favourable in comparison for young investors looking for wealth creation than those investors looking for wealth protection means. And while government bonds are said to be free of default risk, it should be noted that corporates bonds do involve a fair amount of risk.

2. Corporate bonds provide an opportunity to choose from a variety of sectors, structures and credit-quality characteristics to meet your investment objectives. For anyone looking to invest in corporate bonds for the first time, look at it as a long term bond investment vehicle that will grow your investment portfolio. However, market knowledge is essential in order to make the right declines and gain fruitful results. Consulting a financial planner or a portfolio management services firm would help you understand potential risks and the market.