Corporate Bond Is A Debt Obligation Of A Company
What Is A Corporate Bond ?
A certain debt security that a company owes to an investor is called a corporate bond. When an investor buys a corporate bond they are in other words, lending money to the issuing company. In return of the purchase, the company provides legal commitments to pay interest on the principal amount and once the bond matures the principal is returned.
Why Do Corporations Sell Bonds ?
Bonds sold by a corporation are basically debt financing. These bonds can be a huge source of money for many businesses. The raised amount helps them to increase their capitals to pay off for other expensive debts and also to expand their present operation. Moreover, this also helps the company to yield more profit.In general, a company must have a regular and permanent source of income to offer debt securities to the investors at a convenient rate.
The Difference Between Corporate Bonds & Stocks
In the case of stocks, when an investor buys stocks, he/she is basically purchasing the company’s share but when corporate bonds are purchased, the investors are only granting money to the company. The value of the stocks depends on the rise and fall of the company’s value. Hence when the value of the company rises, the investors make a profit out of it. Similarly, when the value of the company falls, the investor faces a loss too. In the case of bonds, the investors earn an interest and not a profit. When a company goes bankrupt, the bondholders receive its money along with the other creditors much before the stakeholders. This makes the investment a much safer mode of trade.
In certain corporate bonds, the investors are not only paid as proposed but are also secured by assets. Real estate investment has always been regarded as a safe and secure investment, hence corporate bonds offering asset-backed securities in the form of real estate is a much-preferred investment.
Why Invest In Corporate Bonds ?
Investing in Corporate Bonds helps an investor to actively take part in large-scale projects. Moreover, the investors need not attach itself to a specific apartment, building or even a country. The investment amounts can even start from a value as low as 1,000 US dollars. These products are ideal for investors who are looking for hassle-free passive income assured by an asset. Such investments offer more or less high returns, considering the low-risk level involved in this.
Benefits & Securities
There are many benefits of investing in Corporate Bonds. Firstly, the principal amount and returns are backed by real estates, making the investment secured. Secondly, the financial and legal works are carried out by top-level financing and law companies. The properties in corporate bonds are valued by sovereign international valuation companies. Also, the schemes are much more flexible when compared with that of traditional real estate. In such investments, the returns received are fixed and does not vary as per the company’s value like in regular investment in properties under hotel management companies, hence earning the investor a definite profit. Most importantly the opportunities open at much lower entry levels.