Business ventures, debt repayment, and company acquisition often require borrowing money. Issued bonds are one of the ways to borrow money. Corporate bonds, like all bonds, are essentially debt instruments. By purchasing one, the buyer is effectively lending money to the company. For their part, the company is responsible for paying interest on the principal sum and returning it in full when the bond matures after a set period.
Investing in corporate bonds offers investors an income stream, which is more reliable than stock dividends as the interest payments are usually fixed, and more profitable than ultra-safe treasury bonds. It goes without saying that in the investment world there is always a risk-reward tradeoff. And a company’s bond will be more reliable depending on its track record. A company can raise additional capital through corporate bonds without the need to borrow money from a bank, sell equity – or stock – or seek venture capital.
Benefits of corporate bonds:
A great source of income: As a result of their high credit risk, corporate bonds usually provide very attractive yields. All bonds involve a certain amount of risk, though government bonds are regarded as virtually risk-free. At the same time, corporate bonds rated high are considered relatively safe investments. Investing in investment-grade corporate bonds usually offers rates that are two to three percentage points higher than government bonds regardless of the economic cycle
Help in diversifying your portfolio:
Investing in corporate bonds can increase diversification among portfolios as bond instruments often act as counterbalances to equities, moving in opposing directions. A balanced portfolio is desirable for many investors. Bonds can manage the high level of risk associated with investing in growth companies. It is always possible for bondholders to sell their bonds at market price before they mature.
This may be advantageous if interest rates have declined in general since the bonds were issued
Great capital gains: Investors can still make profits from corporate bonds, even though they’re primarily income investments. Bond prices, for instance, fluctuate based on interest rates and economic conditions, which means corporate bonds are attractive during volatile economic conditions. The correlation between junk bonds and equities has even increased since the onset of the Coronavirus pandemic since junk bonds are historically more like stocks than low-risk corporate bonds. Be prepared to sell your bonds quickly when the price increases and time them carefully.
High liquidity: Investors can buy and sell corporate bonds after they have been issued in the secondary market, allowing them to take advantage of rising prices or declines in price when they sell a bond. It’s also important to keep in mind that certain corporate bonds are thinly traded. Market participants who wish to sell these bonds should understand that numerous factors will influence them, such as interest rates, credit ratings, and their size of the position.
A company bond is always a great option to invest in, as it can offer you high amounts of capital gain & provide you with many other benefits at the same time in the long run.