What are Corporate Bonds?
Companies issue corporate bonds to raise finance for various reasons, such as building a new plant, buying equipment or for business expansion. Corporate bonds are generally medium to long-term debt instruments with more than one year of maturity. Whereas debt instruments issued by corporates with a maturity shorter than one year are referred to as commercial paper.
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Types of Corporate Bonds
PSU bonds meaning – understanding the key terms and PSU bonds meaning can help you have a better understanding. Unlike other bonds, PSU bonds are also preferred by a certain percentage of the investors in India.
PSU Banks, power sector companies, railways, and other organisations issues PSU bonds as they have 51% of the government shareholding with them. These entities could be held by central or state government.
Valuation of Indian Corporate Bonds
Corporate Bonds are inversely proportional to interest rates as they rise in value with the fall in interest rates, and their value falls with the rise in interest rates. Normally, the longer the maturity, the greater is the percentage of price volatility. Corporate bond fund has its own importance. Investors can take the decision considering essential risk factors.
Upon holding the bond till maturity, the concern for the price fluctuations will be less which is known as market risk or interest-rate risk, because one will get the bond at face, or par value at the maturity. The inverse relationship of the bonds and interest rates means that the bonds are less worthy. When interest rates rise and vice versa that can be described below:
- Rise in interest rates
New market issues come up with higher yields as compared to the older securities, making the older ones unworthy. Therefore, the prices will go down.
- Decline in interest rates
New bond issues come up in the market with lower yields as compared to the older securities, which makes the older ones, higher-yielding ones, more useful. Hence, the prices will go up.
- Selling of bond before maturity
If a person sells a bond before maturity, it makes worth if the prices are high presently or selling at lower rate is unworthy of what it was paid for.
How to Invest in Corporate bonds
Investment in Bonds can be done in a few easy steps with Quick KYC, Bond Selection and a convenient payment gateway.
1.
Complete your KYC
2.
Select your Bond
3.
Make Investment
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Features of Corporate Bonds in India
- Taxable : Interest on corporate bonds is generally taxable.
- Credit Rating Criterion : Corporate Bonds can be classified into two types on the basis of Credit Rating: Investment Grade and Non-investment Grade (Junk Bonds). Bonds having a credit rating of AAA to BBB are considered as Investment Grade Bonds; others are considered Non-investment Grade Bonds.
- Coupon rate : Corporate bonds have higher coupon rates than G-secs. Normally, corporate bonds provide 7% (AAA rated) to 12% (A-rated) coupons in the current year, 2021. On the contrary, G-secs provide a 6% coupon rate. Many times, investors prefer investing considering corporate bonds’ interest rates.
- Tenor : Corporate Bonds have shorter tenures as compared to G-secs. Upon maturity of the corporate bond, the investor obtains the principal amount. Until maturity, the money is owed by the investor to the issuer, and during the maturity period, the principal is repaid with any outstanding interest, and the contract gets settled.
- Moderate liquidity : The liquidity of the corporate bond market via Over counter is moderate to high, subject to the specific bond. Here, liquidity means the ease of selling the bonds without much price negotiation.
Why Invest in Corporate Bonds in India?
The better understanding of corporate bonds meaning and relevant information on the high yielding investment option can help fulfil your long-term objectives along with short term objectives. Corporate Bonds are a good and high yielding investment choice from a safe option. The income is predictable. Investors get interest twice and it is a reliable way to preserve your capital.
Advantages of Investing in Corporate Bonds
Good Investment Option
Every investor should gauze the risk involved in the investment option chosen for investment prior to making an investment. Corporate Bonds are a good investment option.
Higher Yields
For the investors looking for regular and higher returns corporate bonds are a good choice. In comparison to government bonds, the return in corporate bonds is high. The corporate bonds interest rates are also a major attraction for investors.
Low Risk
Corporate Bonds have a low risk and are not affected by inflation. Investing in corporate bonds with AA+ or above is safe. Also, in case the issuing company is declared bankrupt, bond holders get priority over stock holders.
Who Should Invest in Corporate Bonds?
Individual investors, corporations, and government enterprises can invest in corporate bonds. Interested investors can buy corporate bonds through a bank, a broker, brokerage firm, or a bond trader.
The retail investors interested in safe investment with capital preservation can consider investing in Corporate Bonds.
Why to Invest in Indian Corporate Bonds?
Corporate bonds are known to offer comparatively higher returns, liquidity, portfolio diversification, and are good for fixed periodic income. Investing in Indian Corporate Bonds can help you take the advantage of its excellent features and of course the returns better than other investment avenues.
Your preference for the investment in corporate bonds in India can also help you retire rich.
- Indian corporate bonds are a reliable source for additional income
- Relatively better returns in Indian corporate bonds
- They help you diversify your investment portfolio and balance your portfolio.
Do you want to know about corporate bonds interest rates in India? Let me tell you that you do not need to worry about corporate bonds interest rates as the corporate bonds are known to offer the coupon rate that ranges between 7 to 14% annually. Corporate bond fund can also prove to be a good option if you wish to go for diversification. You are required to stay cautious and make investment decisions as there is a risk with every investment.
Today, investors have varied sources online and it is better to choose the online platform facilitating higher security.
If you are looking to buy bonds after detailed research, consider Digifinn . You can explore the listed bonds available for the potential trade in a fraction of seconds.