Corporate Bonds Are another type of debt funds which invest atleast 80% of their funds on the companies with the best credit rating. The companies selected are financially strong and carry a good reputation of paying back to investors on time.
- Suitable for people looking for parking their money for 24-36 month.
- Corporate bonds are expected to deliver better return than funds for similar duration.
- The bonds also qualify for indexation benefits, if these are held for more than 36 month.
Advantages of Corporate Bonds
One major draw of corporate bonds is their strong returns. Yields on some government bonds have repeatedly plunged to new record lows. The U.S. government sold $12 billion worth of 30-year Treasury bonds for a 2.172% yield on July 13, 2016, breaking the previous record of 2.43% set in January 2015. As of 2018, the corporate bond yield had reached as high as 4.02%.
LiquidityMany corporate bonds trade in the secondary market, which permits investors to buy and sell these securities after they have been issued. By doing so, investors can potentially benefit from selling bonds that have risen in price or buying bonds after a price decline.
Some corporate bonds are thinly traded. Market participants looking to sell these securities should also know that numerous variables could affect their transactions, including interest rates, the credit rating of their bonds, and the size of their position.
Widespread OptionsThere are many types of corporate bonds, such as short-term bonds with maturities of five years or less, medium-term bonds that mature in five to 12 years and long-term bonds that mature in more than 12 years.
Beyond maturity considerations, corporate bonds may offer many different coupon structures. Bonds that have a zero-coupon rate do not make any interest payments. Instead, governments, government agencies, and companies issue bonds with zero-coupon rates at a discount to their par value. Bonds with a fixed coupon rate pay the same interest rate until they reach maturity, usually on an annual or semiannual basis.