Corporate bonds are debt instruments. That is issue by various corporate across globe. They are more secure than equity instruments. You must examine rating before buying corporate bonds in India. And also see mortgage bond examples. Hence, for more information see types of mortgage bond.
Corporate bond definition
Corporate bond is nothing but debt instruments issue by company. And sold to investors both retail and large institutes. Thus interest payment and maturity on these bonds are from revenue of company. Often, company assets are use as collateral.
Difference between corporate bond and government bond
But, corporate bonds are consider to be less secure than government bonds. But only difference is that one is issue by government and other by corporate. Interest rates might be slightly low in case of government bonds
Where to buy corporate bonds in India
Corporate bonds are issue for retail investors in India. Most of bonds that are issue are private placed with large institutional investors. Retail investors have to invest in tax free bonds and non convertible debentures.
But, corporate bonds are list on NSE and BSE exchanges. It is difficult to say that these bonds also include non convertible debentures. And also tax free bonds that were issue.
Last years and this year various big corporates raised money through bonds. Also, like Hindalco Industries, Sterlite Industries and Larsen &Toubo. This is most preferred route for many corporate in India
Corporate bond market has attracted many investors with high yield. In general, corporate are second largest sector in bond market after government bonds. Unlike equities, ownership of corporate bonds does not signify an ownership interest. Instead, company pays rate of interest over period of time to investors. And repays principal amount at maturity date at time of bond issue.
Tax free bonds in India
Most of corporates bonds listed earlier in form of NCDs or tax free bonds. And these are only list options that are available in debt segment for retail investors. Tax free bonds are issue by government owned companies. But interest on these is tax free in hand of investor. Hence, see bond (Not posted)
Corporate Bond Market in India
Corporate bonds can be issue in two ways. Such as Public issue and private placement.
Public issue: In public issue, corporations issue bonds to market as a whole. Also Institutions as well as retail investors can take part in this issue. In case of Public issue cost of borrowing is little high. In private placement corporate, generally park bond issuance with few institutions.
In India, more than 90% of corporate bonds are issue through private placement. It is an easiest and cheapest way of borrowing corporate bonds.
Key components of corporate bonds
There are many components of corporate bonds. Major components are give below
This price at which Corporate Bonds are issue to investors. Issue price is same as Face Value in case of coupon bearing bond. In case of non-coupon bearing bond (zero coupon bonds) is generally issue at discount.
Face Value (FV)
It is also known as par value or principal value. Coupon (interest) is calculate on face value of bond. FV is price of bond, which is agreed by issuer to pay to investor exclude interest amount on maturity date. Sometime issuer can pay premium above face value at time of maturity.
Coupon or Interest is cash flow. That is offer by particular security at fixed intervals or predefined dates. This coupon expressed as percentage of face value of security gives coupon rate.
Coupon Frequency means how an issuer pays coupon to holder. Bonds pay interest monthly, quarterly, semi-annually or annually. Maturity date is in future on which investor’s principal will be repay. From that date, security ceases to exist.
Call or Put option is Date on which issuer or investor can exercise their rights to redeem security.
Maturity or Redemption Value is pay by issuer. And other than coupon payment called redemption value. If redemption proceeds are more than face value of
Bond or debentures, debentures are redeem at premium. If you get less than face Value then you can redeem at discount. And if you get same as your face value, then they are redeem at par. Advantages of Corporate Bonds
Some of advantages of Corporate Bonds are
Corporate Bonds are useful for long term capital needs of corporate sector. Above all, when equity market is not working or Company do not wants to issue equity shares. But principal amount is safe as compared to investment in Equity Shares.
Also there is regular income in form of interest. But Issue of Corporate Bonds is useful for Infrastructure Companies. As they need Capital for long period as compare to other sectors.
How can you invest in such bonds?
Corporate Bonds help in reducing cost of borrow as compare from Banks. Long Term Capital can be well raised through issue of Bonds. But rating of Bonds helps to take an easy decision. Rate of Interest is high as compare to Bank Deposits. In case of List Bonds there is Liquidity of Investment and Capital appreciation.
Finally, see corporate bonds examples. However, check corporate bond rates. And also see what mortgage bond is. Thus see what government bond is. You can check types of bonds. Hence, for more details see bonds vs. stocks.