Corporate Bond Funds vs. Corporate Bonds

Successful corporations are ideal companies to invest in. Large enough corporations that show a history of growing success will provide corporate bond funds as well as corporate bonds to allow people to invest in their company. Any growth and success of the corporation is shared with the investors. Purchasing corporate bond funds is basically a way of lending money to the corporation, but without the loan earning interest. Earnings are generated by the corporation’s growth and success. There are a few differences however between corporate bond funds and corporate bonds. The end result with both methods still show a return to investors that buy bonds.

Corporate bond funds vs. corporate bonds are similar and appealing to investors in different ways. Corporate bonds are simpler and interest can be earned on them, where corporate bond funds do not earn interest. A predetermined amount of interest is paid to the investor over a certain period of time. The money that is invested is used for what ever purposes the corporation may need it for. Corporate bonds are known to have bond terms. This is the amount of time the bond is in affect till the end of the bond term. Once the bond is over, the investor can cash in their bond certificate that they received when purchasing the bond. All investment is paid back to the investor.

With corporate bonds, the investor acts like a creditor and earns interest. Investors who are interested in earning interest from a corporation can earn payments for up to 30 years before they cash in their certificate. There are a number of reasons why purchasing corporate bonds are appealing to investors. One of those reasons is the amount of risk that is involved. There is very little risk investing in corporate bonds. Even if the corporation collapses and goes bankrupt, the investor is guaranteed their return investment through the corporation’s liquidation process.

Corporate bond funds on the other hand are a little different. There is a certain amount of variations with corporate bond funds vs. corporate bonds. It is basically mutual funds that are being purchased when purchasing corporate bonds. Corporations that major in buying corporate bonds as their number one form of investment are the ones that purchase a lot of corporate bonds. Unlike the usual investor who purchases corporate bonds, the corporation itself will purchase large amounts of bonds. The decisions are made by a fund manager who decides what to invest in and gives advice to investors. Purchasing a bond fund is not only for corporations though. Individual investors can also purchase corporate bond funds.

Individual investors who purchase bond funds do not decide on what corporate bonds to invest in. The corporation makes those decisions through fund managers. All decisions are made by fund management teams and fund managers. An investor simply hands over their money for these teams and managers to invest in. Interest payments with corporate bond funds are not stable and fluctuate. In some case no interest payments will be seen during selling. Other changes to the corporate bond funds that fund managers typically practice will cause fluctuation in interest payments as well.

Unlike corporate bonds, corporate bond funds are riskier. If the corporation defaults and files for bankruptcy, investors may be unable to recover their investments. The chances of this happening are still very low, but the risk makes buying corporate bonds more appealing to those looking for less risk. Smart investors should never have all their eggs in one basket. It’s recommended that investors diversify their portfolio with both corporate bonds and corporate bond funds. New investors who are looking for more reliable and stable investment opportunities should invest in corporate bonds. More experienced risk takers invest in corporate bond funds later on. Both are away for investors to plan for their future.

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