How to Buy Corporate Bonds

Corporate bond investment is considered to be more complex than choosing to invest in stocks. The debt market for individual, corporate bonds is no place for an amateur. When you purchase corporate bonds, you invest your money, and it will be used in enhancing or expanding the business operations of the company that issued that bond. In return, the company promises to refund you your principal amount at a specified date and until then, it continues to pay you a regular interest most probably semi-annually. This interest is taxable.

Types of corporate bonds

There are four major groups of corporate bonds that are differentiated by sectors; industrials, transports, financial services and utilities. Corporate bonds are also classified according to the type of assets that serve as collaterals to secure loans like financial obligations, machinery equipment and mortgages. Corporates that do not have any key collateral are regarded as debentures. Corporate debt is further subdivided depending on seniority. In circumstances of a default, corporate bonds that were issued as 'senior bonds' range high in the pecking order of people getting their refunds than 'junior' or 'subordinated' bonds.

How to buy corporate bonds

When purchasing corporate bonds, you first have to contact the company's investment department or visit the particular company's website so as to acquire more information about its bonds. However, because corporate bonds are a bit more complex to buy than purchasing a common stock, you may need to consult your financial adviser or go through a broker so as to add bonds to your portfolio. The most efficient and quickest way to purchase a corporate bond is to contact your broker or financial adviser and have her/him discuss with you the appropriate types of corporate bonds to choose for your portfolio. They can also help you transact all the legal procedures and go through the various types of bonds very quickly.

Most bonds are offered in what is referred to as an OTC market or over-the-counter market, and a broker will efficiently help you with this. If you want to buy corporate bonds at their initial offering, also regarded as the primary offering, you may still need the help of a broker in doing this. You can also choose to buy bonds in the secondary market.

What are Exchange Traded Funds (Bond ETFs)?

If you prefer managing your own investments, you might consider adding to your stock portfolio with bond ETFs. Bond ETFs are not just like other bonds; they do not have maturities and they do not guarantee a full refund of your investment after a specified time frame. Just like any other ETFs, bond ETFs keep fluctuating in price, and they tend to be riskier than purchasing the bond itself. Bond ETFs try to replicate bonds and interest payments very fast. Some ETFs can pay interest into your account on a quarterly or monthly basis. It is crucial to read through the whole prospectus before investing in bond exchange-traded funds. Keep in mind that EFTs are purchased and traded just like other stocks. You can purchase and sell them anytime within regular trading hours from your online trading account without involving a broker.

Bonds can be a wise investment although prospecting in the individual, corporate bond market is not that easy. Take your time and think hard before diving into corporate bonds. You should also be willing to consider government-backed debt or bond mutual funds instead.