Many companies use two ways to raise the money required for business growth. The way in which they do this is through issuing shares or issuing bonds. With shares you become a part owner of the company but with bonds you become a lender to the company. Corporate bonds are one of the main ways for them to raise capital. The question arises: just how safe are corporate bonds?
As with all bonds, corporate bond prices are sensitive to universal fluctuations in interest rates. CARE, Crisil or Fitch rate most bonds. Any with a rating of B B B or higher are considered to be investment grade. Those rated lower would be considered as a “junk bond.” The higher the rating the lower the rate of return the issuer can offer. While an investment-grade corporate bond may still default you can be more confident in its ability to repay its debt.
At the end of the day corporate bonds are only as safe as the company in which you invest. Read annual reports to learn about the company’s cash reserves, their outstanding debt and profit projections. Look for realistic responses to economic changes.
Benefits of Investing in Corporate Fixed Deposit
• Fixed Return on investment
• Relatively Safe return on Investment
• No Income Tax is deducted at source if the interest income is up to Rs 5,000 in one financial year. Investment can be spread in more than one company, so that interest from one company does not exceed Rs. 5,000.
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