Corporate Bonds Explained
Investing in business
Explained simply, corporate bonds are loans made to corporations (or companies) by individual investors. In return for such a loan the investor receives their capital back once the loan period has expired, plus what is usually a predetermined amount in interest.
Pros and cons of corporate bonds explained:
Corporate bonds are bought and sold on the stock market, this means that the value of your capital may go up as well as down. Although the amount you receive in interest is likely to be at a fixed rate, you are not guaranteed to get the full capital back because of the potential fluctuation in value of that capital.
Corporate bonds are not guaranteed, and occasionally the corporation that you invest with may be left unable to meet any responsibility to pay you back, for example if the corporation should go bust. Generally the higher the chance of the happening the higher the rates you will be offered.
If you are thinking of investing in corporate bonds you may want to consider joining a pooled bond fund. Bond funds invest in a variety of bond investment opportunities, and in this way will keep your capital more secure. However, if you invest your money with a bond fund you are more likely to get lower returns, and instead of receiving a fixed rate of return, the bond fund will aim for a target return.
Government bonds, also known as gilts, are one alternative to investing in corporate bonds. Gilts are generally lower risk than corporate bonds because you can be sure that the UK government is unlikely to go bust. However, government bonds are also bought and sold on the stock market so the value of your capital investment may fluctuate, just as with a corporate bond.
For corporate bonds explained in greater detail, and to find out what bond investment options may be available to you speak to an independent investment advisor:
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