The benefits of investing in corporate bonds

When a company wants to raise capital for its business, one effective way is through the issuance of corporate bonds.  Here is a general overview of how corporate bonds work:
A company in need of capital will issue bonds to investors, with the proceeds from the bond sale going to the company.  The company or  the bond issuer promises to pay the bondholder or the investors a fixed interest rate (coupon) for a set period of time, and to repay the bond's face value (principal) on the bond's maturity date.  

Here is a list of terms associated with bonds investors should know: 

• Coupon rate is the interest rate that the bond issuer will pay to the bondholder.

• Coupon payment is the payment by which the bond issuer pays the coupon rate to the bondholder on a regular basis, typically semi-annually or annually.

• Corporate bonds are rated by credit rating agencies such as Standard & Poor's, Moody's, and Fitch. These ratings indicate the creditworthiness of the company and the likelihood that it will be able to make interest and principal payments on the bond.  It is important to research the credit rating of the company and understand the risks associated with investing in bonds with lower ratings.

• Maturity date is the date on which the principal amount of the bond is due to be repaid. Some bonds have a short maturity, while others have a longer maturity.  Short-term bonds tend to be less risky than long-term bonds, as there is less time for something to go wrong. 

• Corporate bonds carry a risk, also known as default risk,  that the issuer may not be able to make the interest or principal payments on time, leading to default.  The credit rating assigned to a bond by rating agencies provides an indication of the level of risk.

• Once issued, corporate bonds can be bought and sold on the bond market. Their prices fluctuate based on the supply and demand and various factors including the interest rate, credit rating, and company's financial performance, etc.

• Like all bonds, the value of corporate bonds will fluctuate with changes in interest rates, also known as interest rate risk.  If interest rates rise, the value of existing bonds will generally decrease, and if interest rates fall, the value of existing bonds will generally increase. This is something that investors should be aware of and consider when making investment decisions.

• Bond yield is the total return of the bond including both the coupon interest and the change in price.

• Interest earned on corporate bonds is generally subject to income tax, it is important to consider how taxes will affect your investment returns.

Corporate bonds provide a fixed income stream in the form of coupon payments. These payments provide regular cash flow for the investor.

Corporate bonds can be used to diversify a portfolio, as the returns on bonds tend to be less correlated with returns on stocks.  By adding bonds to a portfolio, investors can potentially reduce the overall volatility of their investments.

Corporate bonds are generally considered less risky than stocks, as they are a form of debt and not equity. This means that bondholders have a higher priority in the event of a company's liquidation.

Corporate bonds can offer a balance of risk and return. They generally offer a lower rate of return than stocks, but also carry a lower risk of loss of capital.

Corporate bonds have maturity dates, which can align with investors' goals or financial needs. This allows investors to plan for the future, knowing when they will receive the principal investment amount back.

The market for corporate bonds can offer opportunities for investors to purchase bonds at a discount in case of market turmoil, or when investors' sentiment is negative towards certain sectors, providing an opportunity for high yield in the future.
Like all other investments, corporate bonds come with risks and it is important to do your own research and consider your own risk tolerance before making any investment decisions.