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Corporate bonds are a way for you to invest in companies. Companies release bonds, usually at a price of around 100GBP per bond. After a set term, you will receive this money back, plus interest. The interest rate on bonds is called the coupon rate and it is fixed, given a currency value rather than a percentage value, and is paid to you ever year for the length of the term. When a company pays you back the nominal value of the bond, you receive the original nominal value, so the stock market value, which may be larger or smaller then the nominal price, is not taken into account. Corporate bonds do carry an investment risk in that the company that you purchase bonds from may go bust. This would result in the company being unable to pay the money that it owes you. For this reason, riskier companies tend to release bonds with higher coupon rates. During the period after a bond being released and a bond reaching the end of its term, the bond can be bought or sold on the stock market. This means that the value of the bond can rise and fall along with the market value if the company, but the value will also depend on the length of time left in the bond term, as well as the current state of the stock market as a whole. Prior to 2010, only the very wealthy could afford to purchase corporate bonds as they were released in minimum denominations of around 50,000 to 100,000 GBP. Recent changes mean that you can now purchase bonds in more affordable denominations of a minimum of 1000 GBP. For most people, the best way to invest in corporate bonds is by putting money into a corporate bond fund. These are a type of pooled investment whereby a fund manager will buy lots of bonds on behalf of the investors in that fund, and all the proceeds are shared. The new retail market for corporate bonds allows savers to buy individual bonds from major companies such as BT or Tesco. Individual bonds tend to give bigger returns than standard savings accounts, although if interest rates rise significantly, you would still be stuck with the same interest rate. Investing in a corporate bond fund has advantages in that the fund manager does all the hard work for you and your return will likely by higher than with individual bonds.
Article Source: http://www.casinoarticlessite.com
Otha Isiminger is very knowledgeable on savings and accounts and loves to write about corporate bonds.
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