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A corporate bond is a debt security, a company intending to raise funds may issue a corporate bond. [Subject to the approval of various Govt authorities]
Corporate bond is issued with a fixed period validity, an investor buys it and in return gets paid with interest [as per the company’s decided terms and conditions]. On maturity, the investor gets the principal back.
The corporate bonds are rated by rating agencies, the highest quality bonds get “AAA” rating i.e. Safest and lower yielding, and the worst gets “Junk” tag.
A corporate bond operates like any standard mutual fund, the NAV value decides the aggregate value of the security.
Relatively safer among debt funds, the schemes are mandated to invest a minimum of 80% of their corpus in the highest-rated companies. However Corporate Bonds carry as usual risk factors that are attached to the economy and company performance.
The price is dynamic, it depends on when you are buying it.
This is the amount company pays back on maturity, the principal amount.
The interest payout is called a coupon, it depends on the bond’s attributes.
The annual return a bond gives is called the current yield, if a coupon rate is 15% of a 10000 bond, 1500 is paid as interest per year.
It indicates the total payout issued against a bond, the current value, coupon payment until maturity, and the principal. The greater the YTM, the higher the return.