Although alternative investment methods, such as crypto-currency, are becoming increasingly popular, many investors are still looking for safe methods to invest capital or diversify their investment portfolios. Therefore, more and more often corporate bonds are discussed, which do not generate as high profits as other financial instruments, but are associated with less risk. And how to earn money on corporate bonds? And what additional costs does the investor have to bear?
Corporate bond interest rates
In both the primary and secondary markets, you will find a large selection of corporate bonds with different interest rates, which will be one of the most interesting factors when choosing debt securities. Why? Because it is the interest rate that makes you earn money. So what will it depend on?
Most often, the interest rate offered by the issuer is related to the level of risk of investing in its company. What does it mean? If the company is in a good financial situation and can prove it, it offers less favourable conditions for purchasing bonds, but the risk of the company’s insolvency is minimal. As a result? The investor’s portfolio regularly receives profits, and after the redemption date it recovers the paid-in capital.
What about companies that need money for further development because they are in a worse economic condition? In order to encourage potential buyers to take a risk, they must offer a higher interest rate. Most often it concerns short-term bonds.
What affects the level of risk? Four main factors: debt securities security, maturity date, credit risk and liquidity risk. You can find information about the risk associated with investing in corporate bonds on -corporate bonds/.
Interest payment dates of corporate debt securities
When choosing corporate bonds, one should pay attention to the periods in which interest is paid (resulting, of course, from the interest rate). Depending on the type of debt securities coupon, the investor’s account may be credited with interest every month, every six months, once a year or only when the debt securities are redeemed.
Profits flow into the brokerage account and can be immediately reinvested or transferred to the selected bank account. For this reason, many issuers offer bonds with interest paid at shorter intervals – an additional incentive for investors, who can use them on an ongoing basis. Most often such terms are chosen in the case of long-term investments, where regularity of repayments counts.
Costs related to investing in corporate bonds
In order to be able to invest, you need to have a brokerage account, which involves incurring additional costs. Most often these amounts are not high per year because they do not exceed 100 USD. What should I pay attention to? The amount of account fees, transaction fees and fees for additional services.
One should not forget to pay the capital gains tax, which for bonds is 19%. Depending on whether you are investing on the primary or secondary market, there will be a different way to calculate the amount due.
As you can see, the profits from investing in corporate bonds far exceed the costs incurred by the investor, which makes it an attractive way to invest capital. And what if you do not know how to effectively earn money from debt securities trading? Get the help of financial advisors authorized by the Warsaw Stock Exchange, who can legally assist in making decisions concerning these financial instruments.