Corporate Bonds
When companies need to borrow money one of their options is to borrow money from the public. In return they issue an IOU – a corporate bond. When you invest in a bond you are lending the company money.
Similar to any other loan, these corporate bonds are offered to the public with a rate of interest payable to the investor (the lender) and a promise to pay back the money at a certain date in the future.
However with any company there is always an element of risk that they may not be able to pay back the loan. For this reason they need to pay a higher rate of interest to investors in order to attract enough to make the issue of the bond viable.
The companies that issue bonds are given a rating by ratings agencies such as Standard and Poor’s to give investors an idea as to how risky a company is likely to be. Ratings range from AAA through to D.
Once the initial bond has been issued to the public the individual holdings can be traded on exchanges just like shares.
However because the corporate bond market is much larger and more complicated it is quite normal for individual private investors to purchase bonds through a collective investment fund such as a corporate bond fund, usually named bond funds or fixed interest funds. These tend to be relatively high income producing funds that are intended for stable returns and low capital growth.
You can buy corporate bond funds using Investor Profile's online investment service quickly and easily and hold them together with your other assets.
