Exploring corporate bonds as investment options

Corporate bonds are lucrative investment solutions issued by companies. Investing in them is fruitful, based on the pattern of investment and the bonds in question.

In their quest for new investment horizons, investors have started exploring a useful option known as the ‘corporate bond’.

Corporate bonds are debt securities that are issued by companies and which are sold to investors via intermediaries such as investment brokers. The bond is issued against the company’s revenues and the future scope of its business. In some cases, the business’s physical assets are pledged as collateral for the bond before being issued.

Since corporate bonds are riskier than Government bonds, their interest rates are higher. The rates continue to be high even for top grade companies with a bankable return rate. They are issued in certain denominations or ‘batches’. Once the investor purchases the bond, the company pays interest on it till the bond matures. On reaching maturity, the investor can claim the original value (known as ‘face value’) of the bond.

In some cases, especially when the market rates decline, corporate bonds may be recalled and investors may be allowed to sell the bond before maturity. Corporate bonds normally have fixed interest rates and these largely remain stable throughout the tenure of the bond. Certain investors purchase bonds that come with floating (also known as ‘variable’) rate of interest only.

Why invest in corporate bonds?

They offer high returns. Their returns are normally higher than Government bond yields.

Guaranteed returns. If the bonds are issued by premium companies with a more than good performance, the returns on them are assured.

Investment basis the rating. Every corporate bond issued in the GCC region carries a rating. This rating is granted basis the bond’s credit history and the company’s revenue and repayment capability. The higher the rating, the safer it is to invest in it. Hence, investors can simply check a bond’s rating before investing in it.

Diverse portfolio. These bonds give investors the chance to create a diverse portfolio of investments, from various industries and sectors.

Highly liquid. Though investment advisors recommend that you do not do so, it is possible to sell the bond before maturity quite quickly.