If you’re thinking of adding bonds to your portfolio, there’s a good chance you’ve come across Corporate Bonds. They can offer better returns than fixed deposits and government bonds but come with their own set of considerations.
So before you jump in, it helps to know how to evaluate them.
Know who’s borrowing your money
At the core of every corporate bond is a company looking to raise money. You’re lending to them. So ask yourself — do you trust them?
Start by learning what the company does. Is it in a stable sector like power or infrastructure or is it a smaller player in a volatile space? Look for basic details like the company’s history, financial strength and whether they’ve issued bonds before.
Ratings are a good place to start
You’ll notice that every bond comes with a rating — like AAA or AA. These are given by credit rating agencies to indicate how safe the bond is.
AAA means the company is considered very reliable when it comes to repaying its debt. Lower ratings usually mean higher returns but also higher risk. As a beginner, staying with higher-rated bonds is generally a better idea.
Compare the interest rates
The coupon rate is what the company promises to pay you regularly. Some Corporate Bonds offer 7 percent, others may go as high as 10 percent or more.
But don’t pick just based on that. A higher interest often means the company needs to offer more to attract investors — which could mean there’s more risk involved. Balance is key
How long is your money tied up?
Every bond comes with a maturity date — that’s when you get your principal back. It could be a year from now or even ten years down the line.
Shorter bonds are more liquid and less affected by changes in interest rates. Longer ones might give better returns but come with a longer commitment. Think about what works for your plans.
Can you exit if needed?
Not all bonds are easy to sell before maturity. Some are listed on exchanges and actively traded, which makes them easier to exit. Others might not have much demand.
If you think you might need to withdraw early, this matters. Look for bonds that come with better liquidity.
Tax is part of the picture
Whatever interest you earn is taxable. That’s something to keep in mind when comparing options. The actual return in your hand might be lower than what’s advertised, depending on your tax bracket.
Some people also factor in capital gains if they plan to sell before maturity. A quick check with your tax advisor could be helpful here.
A steady part of your portfolio
Corporate Bonds offer a good mix of stability and return if chosen wisely. They won’t double your money overnight but they can give you predictable income without the ups and downs of the stock market.
As always, the key is to look beyond the headline return. Do a little digging and you’ll make smarter choices.
