CORPORATE BOND FUND
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Corporate bonds are a form of debt security sold to investors by corporations that want to raise finance for their operations. Repayment is made in full principal or interest earned over some time.
In simple terms, if you purchase this type of bond, you are loaning the amount to the corporation for its operation. These bonds are different from stocks. They are legal contracts that bind the corporation to repay the borrowed money to you with interest at fixed intervals. Usually, corporate bonds offer a higher rate of interest than government bonds.
Benefits of investing in a corporate bond
If you are wondering about the benefits of this type of bond, we’ve got you covered. Here’s why you should invest in a corporate bond fund:
- Higher interest: Corporate bonds usually have a higher interest rate compared to government bonds. It makes for a good investment if you are looking for higher rewards.
- Low risk: Before making any investment, you must gauge the risk that the investment entails. Corporate bonds in India, for that matter, are less at risk. These bonds are not too affected by inflation.
- Quick rewards: These bonds are generally short-term investments. You are likely to reap the benefits of your investment within a short time.
Types of corporate bonds
Corporate bonds in India are primarily of two kinds—Convertible and Non-convertible.
- Convertible bonds: You can convert these bonds into predefined stocks at your disposal. So if at any point in time, you feel that stocks are likely to give you better returns than bonds, you can convert them into shares.
- Non-convertible: As the name suggests, these bonds cannot be converted into stocks. These will be plain bonds purchased from a corporation for some time.
Corporate bonds are a low-risk investment if you are looking for a short-term investment tool. They offer higher returns compared to government bonds. Before you invest in a corporate bond fund, weigh the risks carefully.