Different Types of Bonds
Corporate Bonds
Corporations may also issue out bonds. Usually
corporate bonds have fixed interest rates and, similar to Government
bonds, are also issued in order to raise capital.
The pay-out
of this kind of bond is generally a sum greater than the initial
value upon the bond’s maturity. For corporations,
offering bonds is a more cost-effective way to raise money than
arranging for a bank loan.
As corporations may go bankrupt or incur
losses to the point they are unable to redeem the bonds they
issue, corporate bonds are
considered a greater investment risk than Government bonds. This
being the case, the potential returns from corporate bonds are
much higher compared to Government-issued bonds. Also, corporate
are relatively less riskier than investing in stocks and shares.
When
investing in corporate bonds, keep in mind their volatile capital
value which is affected by changes in interest and inflation
rates. Also, the interval between dividend payments varies between
corporate bond products.
Generally, corporate bonds are only available
to fund managers who include them in a larger investment package
(e.g. ISAs and
PEPs).
