Corporate Bond Fund Investing for Beginners

The corporate bond fund is an investment that has grown in popularity in recent years. With this type of investment, you are buying shares in a fund that purchases corporate bonds. There are several strategies that you could use to invest in corporate bond funds successfully. Here are a few strategies and things that you need to know about corporate bond funds.

What is a Corporate Bond Fund?

Companies issue corporate bonds to raise money by borrowing it from investors. They issue bonds for a certain amount of money and then pay the investors interest regularly over the long term. Then at the end of the term, the investors get their money back. It is one of the safest methods of investment available. If the company goes bankrupt, there is still a good chance that you get your money back because you are a creditor. 

A corporate bond fund is a mutual fund that holds corporate bonds. Many investors pool their money together and buy a variety of corporate bonds. The specific investment decisions, such as which bonds to buy and sell, are made by a fund manager. 

Investment Strategy

Corporate bond funds present you with a way to get involved in corporate bonds with a lower level of risk. This should not be your only method of investment, as the returns are capped when compared to stocks.

Here are a few of the strategies that you could use to invest in corporate bond funds.

Good Debt

Corporate bonds are rated, and their ratings help indicate what kind of risk the company represents. The companies with the better ratings are the ones that analysts see as being fundamentally sound. They see them as being on the scene for many years to come. Investing in these types of companies is seen as taking on good debt. One way to invest in corporate bond funds is to buy funds that concentrate only on these companies. It will be one of the safer investments that you could make, and it will provide you with a steady annual return. 

Junk Bonds

Another type of bond fund that you could buy into is one that invests in junk bonds. Junk bonds are those that have a low rating as compared to other bonds. While it might seem illogical to invest in a company whose bonds are rated like this, this is where the big returns can be. Companies in this category offer very high interest rates on their bonds because they have to. This entices investors and can help them earn a very good return on their investments. Investing in a single junk bond could be dangerous. However, when you combine the diversification that a bond fund offers, this could be a nice way to invest. 

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