Corporate Bonds: Features you need to know | GoldenPi

Corporate Bonds: Features you need to know To appreciate Corporate Bonds, you need to understand their features so that you can make an informed decision. In this blog, we will discuss credit rating, liquidity, returns, risks, advantages, disadvantages, and variants of Corporate Bonds.

THE PRIMARY PURPOSE The primary purpose of issuing corporate bonds is to raise capital for business operations and expansion without diluting its ownership.

More Yields as compared to Fixed Deposits FD rates are lower than bond interest rates. Banks have to maintain CRR(Cash Reserve Ratio) as per regulations laid down by the central bank. The banks have to reserve a portion of capital received via FDs; entire capital can not be lent.

Few important features of Corporate Bonds are listed below.

Higher Coupon Rates Corporate bonds offer higher coupon rates than Gsecs. G-secs offer coupons of around 6%, whereas corporate bonds offer approximately between 7% (AAA rated)to 12% (A rated) coupons in the current scenario (The year 2021).

Have Shorter Tenures compared to G-secs Tenure is the period during which the bondholder receives interest payments. Once a bond matures, the investor receives the principal amount.

Moderate to Liquidity The liquidity of security describes the ease of selling it without negotiating on the price. The corporate bond market’s liquidity via OTC can be said as moderate to high (based on the specific bond).

Credit Rating The credit rating is an evaluation of prospective debtors and their debt securities such as bonds and debentures.

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