Corporate Bonds Definition and Example
Corporate Bonds Definition – “Debt instrument created by company in a view to raise the capital from the general public”
Corporate bonds are also known as fixed income security as they provide steady income. These type of bonds comes with a coupon rate. Each year the bond holder receives a fixed income on these bonds depending upon the coupon rate attach to the bond.
These bonds are known as corporate bonds as these are issued by corporations in order to raise capital. These are secured bonds and backed by the companies ability to pay. In case company fails to fulfill its repayment obligations at the time of maturity, the payment is made by selling off the companies assets. These types of bonds have comparatively higher risk than the government bonds.
For example a company ABC limited can run away but government will be always there. But as the risk is higher, the returns are also higher than that of government bonds.
Holding bonds of a company has many advantages as well as down side. A bond holder does not have voting right. However, when it comes to repaying money, debt providers are paid before equity.
Corporate Bonds Example
In order to understand the corporate bond definition, let’s discuss an example.
Suppose you are an investor and you purchase 7% bond of the company ABC. The par value of the bond is Rs 2,000. This means that you will receive Rs 140 as interest payment each year till the maturity of the bond.