Investing In Corporate Bonds
However, if you are new to corporate bond investment
, there are certain things you should consider before leaping forward. Corporate bond investment is not the best form of investment for first time investors. They say the securities market is full of risk and no investor can really gain returns unless he is ready to take up the risk but, if you are complete rookie, corporate bond investment should be a little further down your list of investment options.
Corporate bonds are more or less like stocks. They are investment tools that mostly rely on their trade in the market. Market forces have a huge impact on the performance of these bonds. If the interest rate one gains on these bonds fall over a period of time, there is a significant amount of effect on the yield which is calculated as a percentage on the total investment or price of the bond. The uncertainty that prevails with the interest rates is what makes investing in these bonds risky.
That said for an investor who has already been in the investment market for a while, investing in corporate bonds is a good option. Such investors look for high risk options because these options are generally associated with high returns. If the interest rates on the bonds can fall, they can rise too. And, this is a very distinct possibility. When the interest rates rise, the returns are huge.
The risk involved with corporate bond investment can be mitigated to certain extent by choosing the category of bonds you want to invest in. For example, if you are keen on investing, you should opt for mutual fund corporate bonds because here as there will be a number of other investors as part of the investment, the subsequent risk involved will be spread over several investors. This facility can work out for new investors too.
Bonds have always been on the priority list of active investors because unlike stocks, these securities come with a certain degree of assurance. Government bonds are further toned down because of the return they provide but again it is always a tradeoff between risk and return. As an investor, you should figure out what your investment goals are and then accordingly invest in bonds that suit these goals. It is always advisable to maintain a diversified profile when you are investing in bonds because if you are new at this, there is no way one can say if you will be successful or not. So, it is always better to be safe than sorry in matters of investment.
by: Harsha Maitra
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