Attracting investors’ for all the right reasons
Corporate bonds are a type of fixed interest security. A fixed interest security is a way of ‘lending’ money to a company in return for a fixed rate of interest over a set period. This type of investment is intended to provide you with a regular, reliable income.
Over the coming years, if the yields from corporate bonds outperform the returns from cash, corporate bonds could become an increasingly larger part of investors’ portfolios. This will largely be dependent on the state of the economy, unemployment levels, interest rates and future tax rises.
Every bond issued by a company is given a credit rating by an agency such as Morningstar or Moody’s. These credit rating agencies assess how likely it is that the company will be able to make the interest payments and repay the capital. The most secure rating is an AAA rating.
When you invest into a corporate bond fund, you are lending your money to companies who agree to pay you an amount of interest over a certain period of time. Corporate bonds are issued at different rates of interest by different companies. Generally speaking, the more secure a company is, the lower the interest rates it will need to offer to attract investors.
When held within a trust or fund, ‘fixed interest’ does not mean ‘fixed income’. Corporate bonds offer different rates of interest and mature at different times. Money may be invested into, or withdrawn from, a fund that invests in corporate bonds. The income levels from trusts vary because bonds are continually bought and sold by the fund manager at different rates. Yields are used to indicate the income levels received from corporate bond trusts.
The value of your capital in a corporate bond fund is not guaranteed and can vary. In addition, the value of your investment is likely to fall if interest rates begin to rise in the medium to long-term, but on the flip side, it is likely to increase in value if interest rates fall.
The value of investments and the income from them can go down as well as up and you may not get back your original investment. Past performance is not an indication of future performance. Tax benefits may vary as a result of statutory change and their value will depend on individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent finance acts.