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In the midst of unprecedented turmoil in the financial markets, there are some fantastic opportunities for investors. Of particular interest are corporate bonds, as they offer similar or better returns than shares in the current climate, and represent less of a risk for investors. Corporate bonds are essentially IOU notes written by listed companies who need to raise funds. Bonds usually have a nominal value of 100GBP, although their actual market price can vary depending on the performance of the company concerned. A fixed interest rate is attached to the loan, which is expressed in currency rather than percentage terms. This is known as the coupon rate. For example, you might have a bond with a nominal value of 100GBP offering a coupon rate of eight pounds per year for the duration of the loan. At the moment, there are a lot of companies looking to raise funds to lessen the effects of the recession, which means increased competition for investment. This means that many firms are offering higher than average coupon rates in an attempt to attract investors. One of the main reasons why corporate bonds are a safer bet than shares is that debts and interest payment need to be paid before profits are shared in the form of dividends. So you will receive a profit regardless of whether the firm made a profit or not. Perhaps the only risk presented by corporate bonds is that the company who issued them can go bankrupt. Bankruptcy means that a firm cannot pay their debts, which include bonds. In the event of bankruptcy, bondholders can expect to receive some, but not all, of the nominal value of the bond, and interest payments will cease. With things being the way they are, a company is statistically much more likely to go out of business than at any point in the last eighteen years, making individual bonds something of a risky investment. One way to spread this risk is to invest in a corporate bond fund. A corporate bond fund is a pooled investment in several different bonds, made on behalf of its investors by a fund manager. In the event of one of the companies in the fund going under, the loss will be negated to a certain extent by the positive performance of the other bonds in the fund.
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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