Corporate bonds are debt securities issued by private and public corporations. Companies issue corporate bonds to raise money for a variety of purposes, such as building a new plant, purchasing equipment, or growing the business. When one buys a corporate bond, one lends money to the "issuer," the company that issued the bond. In exchange, the company promises to return the money, also known as "principal," on a specified maturity date. Until that date, the company usually pays you a stated rate of interest, monthly, quarterly, semi annually, annually or at maturity. While a corporate bond gives an IOU from the company, it does not have an ownership interest in the issuing company, unlike when one purchases the company's equity stock.
Yield
Yield is a critical concept in bond investing, because it is the tool used to measure the return of one bond against another. It enables one to make informed decisions about which bond to buy. In essence, yield is the rate of return on bond investment. However, it is not fixed, like a bond's stated interest rate. It changes to reflect the price movements in a bond caused by fluctuating interest rates. The following example illustrates how yield works.
Rating | Description |
---|---|
CRISIL AAA (Highest Safety) | Instruments with this rating are considered to have the highest degree of safety regarding timely servicing of financial obligations. Such instruments carry lowest credit risk. |
CRISIL AA (High Safety) | Instruments with this rating are considered to have high degree of safety regarding timely servicing of financial obligations. Such instruments carry very low credit risk. |
CRISIL A (Adequate Safety) | Instruments with this rating are considered to have adequate degree of safety regarding timely servicing of financial obligations. Such instruments carry low credit risk. |
CRISIL BBB (Moderate Safety) | Instruments with this rating are considered to have moderate degree of safety regarding timely servicing of financial obligations. Such instruments carry moderate credit risk. |
CRISIL BB (Moderate Risk) | Instruments with this rating are considered to have moderate risk of default regarding timely servicing of financial obligations. |
CRISIL B (High Risk) | Instruments with this rating are considered to have high risk of default regarding timely servicing of financial obligations. |
CRISIL C (Very High Risk) | Instruments with this rating are considered to have very high risk of default regarding timely servicing of financial obligations. |
CRISIL D (Default) | Instruments with this rating are in default or are expected to be in default soon. |
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