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Investing in corporate bonds

Corporate bonds. What are and is it worth investing?

What are corporate bonds? What benefits do issuers and investors gain? Answer in the following article.

What are corporate bonds in this case?

A corporate bond is a type of bond which states the amount of goods borrowed from an individual or institution by the enterprise. These bonds are issued in specific denominations and have a fixed interest rate. Thus, bonds can be defined as a form of loan.

How does it work?

Let's assume that we are dealing with a company that has come up with an innovative plan for the construction of real estate. Cheaper, better, faster. After all, in every area of our lives, somebody once came up with an ingenious idea that everyone uses today. Would it not be nice if we were shareholders in the company that invented the brick? Long ago, long ago, someone invented a way to produce it. And this industry continues to grow, and today brick is slowly moving on to the treasures of the previous era.

So let us assume that someone has invented a patent for a new form of building. Without water, cement, without heavy equipment. That is not possible,"sceptics will say. But at the same time when some people are not going to believe in it, others start to earn money for it. Let's assume that the idea was accepted on the local market and the entrepreneur-inventor wants to develop further. He shares his idea with the bank, presents his vision in the bank and tries to obtain credit for the development of his company.

What happens next? Nothing!

The Bank is not interested in further talks. Why? Is it because the idea is bad, unprofitable, without a future? NO! Because banks do not understand such businesses. The systems for awarding funding are clearly defined and any deviation from the rule is virtually impossible.

And the most important truth. In fact, even a secret. Would you like to know the secrets of banks? Keep this information for yourself! Attention: here is an old secret:.


Did you know that the originators of today's most famous smartphone (less by name) could not get credit anywhere? They were not a reliable customer for the bank. And if they had abandoned their idea, many of us today could not keep a phone-tooth in our hands without which they could not imagine functioning.

So we have already established that the banks do not understand the visionary entrepreneurs (later they use their own visions).

And this is where corporate bonds appear.

It is not without reason that they are becoming increasingly popular. They allow companies to raise money for business and growth, and give investors the opportunity to invest their capital in a beneficial way. Their attractiveness for both these groups was manifested in the conditions of limited access to bank credit, on the one hand, and on the other hand in the decreasing attractiveness of bank deposits.

You can be sure that it's not a single season star whose brilliance will glow when conditions or fashion change. Debt securities issues and trading are a huge part of the financial market, and corporate bonds constitute a significant share in it.

There are several dozen companies operating on the market, holding a certificate of an authorised stock exchange advisor. It is these companies that are professionally involved in issuing corporate bonds. Of course, a company may itself be tempted to issue bonds. However, the risk associated with them is much greater for the investor who wants to buy them. Why?

Let us come back to our inventor of a new way of building residential and commercial buildings. If he decides to issue bonds on his own in a private placement, there is virtually no supervision of such an issue. Otherwise, if the issue is conducted by an authorised exchange advisor.

Before the advisor company takes up the bond issue, it will look carefully at the "subject matter".

Especially in terms of risks. Often, of the hundreds of companies, only a few qualify for an authorised advisor to take on the issue. What are these factors? First of all, a product or service "doomed to success". This is what the banks often do not understand. They do not fund the future by focusing on the past. The condition of the company, the security offered and the people - because it is you who create the value of the companies - are also important here.

Corporate bonds, due to their advantages, are an attractive alternative to bank loans for companies. It is used both by small companies, raising amounts in the order of several million, and by large corporations, issuing bonds worth between several hundred million and over one billion.

Investor benefit

The corporate bond market also offers great opportunities for investors and savings holders. The investment in debt securities is less risky than the equity market. At the same time, it gives the possibility of making profits significantly exceeding the interest rate on bank deposits.

Often these are interest rates of 10% - 12% per annum. The average interest rate of corporate bonds listed on Catalyst is about 7 per cent. Interest paid quarterly or semi-annual is even more attractive. It also has many advantages compared to them, such as the possibility of selling bonds at any time and releasing funds, without losing interest.


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