A corporate bond is an instrument issued by a corporate to its investors. This is a way for the company to raise money, and in return, it promises the investors with a specific interest rate over a period of time. This time period
is referred to as the maturity of the bond. For example, if you invest Rs 100 in a debt corporate bond at an interest of 5% and maturity of 5 years, then the corporate will pay you interest of Rs 5 every year and at the end of
5 years, will return your principal amount of Rs 100.
The corporate bonds are bought and sold in the corporate bond market, and this is where the trading (buying and selling) of corporate bonds is done. If you want to invest in corporate bonds, it is advisable to research thoroughly
about the company that you are lending to. Each company is rated by various credit rating agencies on account of the likelihood of them returning your money. There is a possibility of a corporate borrowing money from you and then
defaulting. This possibility is called credit risk. The higher-rated companies have low credit risk and vice versa. Hence, when investing in corporate bonds, to have a fair knowledge about the companies you are investing in is
hygiene and may require some expertise. As compared to Government bonds, corporate bonds are riskier.
You can choose to invest in corporate bonds through the corporate bond funds, which are one of the types of debt funds, investing primarily in corporate bonds.