Corporate Bond Funds

In simple terms, corporate bond funds are mutual funds which consist of various bonds. The companies in charge of these mutual funds make bond funds centered around a certain type of debt. The vast majority of these bond funds are comprised of domestic bonds, junk bonds, international bonds and global bonds. Like mutual funds, corporate bond funds come with different risk and reward potential. When it comes to comparison with stock funds, bond funds are the less risky option. This is because if a corporation files for bankruptcy, holders of bonds are required to be paid before stockholders are paid.

Domestic bonds of this type usually consist of debt from companies located in the same country as the fund. Bonds are rated by the financial security of the issuing company. For example, a company with good credit who issues bonds will get a higher rating, this is because they are more likely to deliver. Some of these bond funds actually pay dividends to bond holders. A different type of bond is a junk bond. These are bonds that are low rated because they are a higher risk. The reason investors buy junk bonds is for their higher interest rates, which are used to lure them because the company is riskier.

Despite the name, junk bonds are not always a bad investment, while you can lose money you can also make a profit if the issuer of the bond makes the interest payments as specified and you are able to redeem your bond at face value when it matures. You might want to also look at global corporate bond funds. These funds contain bonds from both domestic and foreign sources which makes them more diverse and thus not as risky. Diversification is not just important for an investment portfolio, but for corporate bonds as well.

International corporate bond funds contain foreign bonds only, unlike global bonds that contain foreign and domestic. Some international bonds offer high interest rates also because of low credit. This is especially the case in developing countries. You may find that international bond funds have bonds from one specific area of the world. This allows an investor to place their money in bonds that come from the same general area that is hopefully improving on an economic basis.

If you think investing in corporate bond funds is right for you, there is much to learn and a lot to consider before investing your money. It is a wise idea to consult with an investment professional, or even hire an investment professional to execute your trades for you. These professionals understand the complex world of corporate bond funds and also know how to analyze reports and information to be used for your benefit. Like every type of investment, you can make or lose money when investing in bond funds of all types.

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