What are the risks associated with investing in corporate bonds?

Corporate bonds carry more risk than fixed deposits, as they depend on the financial health of the issuing company

How can investors access corporate bonds in India?

Investors can access corporate bonds through mutual funds, directly from the issuing company, or through brokers in the secondary market.

What is the minimum investment required for corporate bonds?

The minimum investment for corporate bonds is typically higher than fixed deposits, often starting at ₹10,000 or more.

What factors should investors consider when choosing between corporate bonds and fixed deposits?

Key factors include risk tolerance, investment horizon, liquidity needs, and expected returns.

Where can investors find reliable information about corporate bonds in India?

Investors can refer to the official RBI website, financial news portals, and reports from authentic and registered credit rating agencies for information on corporate bonds.

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Do Corporate Bonds Give Higher Returns Than Fixed Deposits

Komal Bajpai

Author

Updated: 28-01-2025 at 6:12 AM

Do Corporate Bonds Give Higher Returns Than Fixed Deposits

Corporate bonds are becoming a popular way for businesses to raise money quickly and at a lower cost than bank loans. These bonds, issued by both private and public companies, help cover short-term expenses and support growth. Investors prefer corporate bonds as they provide a source of regular income as well.

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What Are Corporate Bonds?

Corporate bonds are issued by corporations that help them raise money to cover short-term expenses. They are debt instruments issued by both private and public corporations. Corporate bonds also help get capital for growth and development.

These funds are becoming popular because they cost less than bank loans for businesses to raise the money they need.

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Types Of Corporate Bonds

There are several types of corporate bonds to buy issued by companies. Some of the major types of corporate bonds are:

Fixed-rate bonds: These bonds have a fixed rate of interest and that makes them predictable and safe.
Floating-rate bonds: The rate of interest changes based on several factors.
Mortgage bonds: Individuals need to put some valuable possession of theirs as a mortgage to receive the bond.
Debenture bonds: Debenture bonds are promises of payments by the company.
Convertible bonds: These bonds can be converted into a specific number of the company’s shares.

Key Features Of Corporate Bonds

There are some significant features of the corporate bonds. Some of the major features are:

Higher return: Corporate bonds give higher returns than other debt instruments.
Liquidity: As it is mainly for businesses to get short-term finance, it is very liquid.
Security: They have a lower associated risk than shares as they are a financial liability to the company.
Variety: There are several types of corporate bonds from which people can choose the most suitable one.
Credit ratings: Credit ratings are assigned to corporate bonds so that people can make an informed decision before investing in them.

Benefits Of Investing In Corporate Bonds

There are several benefits of corporate bonds. Some of the key benefits of investing in corporate bonds are listed below:

Steady income: Corporate bonds provide regular interest payments based on the type of the bond which makes them appealing to the people.
Higher returns: When compared to government bonds, corporate bonds give a higher rate of interest to the people.
Lower risk: Corporate bonds are less risky when compared to stocks which makes them a safer choice for the people.
Tax-friendly: Some types of corporate bonds come with tax benefits that people can reap after investing.

Difference Between Corporate Bonds & Fixed Deposit

Component	Corporate Bonds	Fixed Deposit (FDs)
Issued by	Public or private companies	Banks and other financial institutions
Rate of interest	Higher than FDs	Fixed, lower than corporate bonds
Level of risk	Higher risk	Low risk
Returns	Higher returns	Lower but stable returns
Liquidity	Can be traded	Cannot be traded easily
Duration of investment	Flexible	Fixed
Ideal for	Investors who want higher returns on their investments	Investors who like steady returns

The Best Corporate Bonds In India

Listed below are some of the best corporate bonds to buy in India are listed below:

Aditya Birla Sun Life Corporate Bond Fund Direct-Growth
SBI Corporate Bond Fund Direct-Growth
Tata Corporate Bond Fund Direct-Growth
ICICI Prudential Corporate Bond Fund Direct Plan-Growth
Bandhan Corporate Bond Fund Direct-Growth
Nippon India Corporate Bond Fund Direct-Growth
HDFC Corporate Bond Fund Direct Plan-Growth
Edelweiss Corporate Bond Fund Direct-Growth
Kotak Corporate Bond Fund Direct-Growth
Axis Corporate Debt Fund Direct-Growth

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Who Should Invest In Corporate Bonds?

Corporate bonds can be chosen by certain types of people. People who should invest in corporate bonds are:

Higher returns: People who prefer a higher rate of returns.
Risk-tolerant: People who can deal with risk.
Flexible: Flexible thinking individuals.

Investing In Corporate Bonds

You can invest in these funds with the help of an intermediary company or asset management company.

Sign up or register for the application.
Complete the KYC procedure.
Pick the mutual funds of your choice.
Deposit the funds for your investment.

It is said that the higher the risk, the higher the return on investment. That is why corporate bonds offer higher returns than fixed deposits. To compensate for this risk, companies usually offer higher interest rates on their bonds compared to the interest rates on FDs, which are generally considered low-risk investments. Corporate bonds also benefit from favourable corporate bond market conditions, further increasing the chance of higher returns.

Current Rate Of Interest In Corporate Bonds

The current rate of interest on corporate bonds ranges from 6% to 12% based on various factors like the credit rating of the bond, duration of the bond, and the existing market conditions among other factors.

Tips To Invest In Corporate Bonds

Certain points that one can take care of before investing in corporate bonds are mentioned below in brief:

Check the credit rating of the bond.
Assess yourself and see what level of risk are you comfortable with.
Compare various types of corporate bonds.
Ensure that you understand everything about the chosen corporate bond.
Consult a professional like a financial advisor if you feel stuck.

Tax Concerning Corporate Bonds

The taxes imposed on corporate bonds are based on the time of sale. The taxation is mentioned below in detail for one’s better understanding:

Short-term: If the bond is being sold within 3 years of its purchase, it is considered as the person’s income and hence has to be included in their income statement.
Long-term: If the bond is being sold after 3 years or more than that by the investor =, a 20% tax is imposed on them.

How Are Corporate Bonds Sold?

One can sell corporate bonds in a number of ways. Some of the major ways are mentioned below:

Corporations issue their bonds at standard prices with all the related details.
With the help of an investment bank, the companies can list their bonds.
Payment of interest is made as per the terms of the bond.
Investors have the option of trading their bonds in the secondary market if they wish to.

Associated Risk With Corporate Bonds

There are some risks involved with investing in corporate bonds. Some of the key risks that one should consider before investing are:

If the interest rates rise, the overall price of the bond can be reduced.
Some bonds aren’t liquid which means that they are hard to sell.
Inflation is one of the key factors which can affect the bond and the interest associated with it.

Conclusion

In conclusion, corporate bonds are a better investment choice than fixed deposits (FDs) if you’re looking for higher returns. While FDs are safe and give steady but low interest, corporate bonds offer much higher returns because they carry more risk. For investors who don’t mind taking on a bit more risk, corporate bonds can lead to higher earnings. It is important to check the company’s financial health before investing.

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