Corporate Bond: Like other investment options, it is important to know some things before investing money in corporate bonds.
Corporate Bond: Fixed Deposit (FD) has been considered as a better investment option for a long time, but due to the low rates in the recent past, it is getting low returns. Apart from this, the tax liability on the return on investment in it also reduces its attractiveness. Because of this, investors are looking for such options in which they can earn better returns with less risk. Corporate bonds can prove to be a better option for such investors. Higher returns can be achieved than FDs on corporate bonds and the tax liability is also reduced. However, like other investment options, it is important to know some things before investing money in it.
Companies issue corporate bonds to raise money
Corporate bonds are issued by companies for short-term expenses such as working capital, advertising and insurance payments. Companies can also take loans from banks to raise money, but it is cheaper to issue bonds than that. Because of this, companies put more emphasis on the option of corporate bonds to raise money.
Why it is better to invest in corporate bonds
- Corporate bonds are a better option than bank FDs as companies usually offer higher interest rates than FDs.
- From the tax point of view, if the investment is held for more than three years, then long term capital gain will be generated and it will be subject to long term capital gains tax along with the benefit of indexation benefits. On the contrary, tax has to be paid according to the income tax slab on FD returns. The long term capital gains tax rate is 20 percent.
- It is a great option with low risk-high returns in which large capital can be built in the long run.
- In this, higher returns can be achieved as compared to government bonds.
Keep these things in mind while investing
- These bonds are a better option for higher returns with less risk which can be used to build large capital in the long run. However, if you can take the risk and want to get above average returns, then investing in this is not a better decision.
- Credit rating agencies evaluate the safety of corporate bonds and through these ratings a decision can be taken regarding their investment. Companies whose bonds are rated AAA are considered the safest. Therefore, rating before investing in bonds
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- Bond prices change over time and you can buy the same bond at different rates depending on where you are buying it.