Investment Grade Bonds are debt instrument issued by company to obtain funding lower cost than the equity stock. Actually these bonds are like loan equipment of companies and  these loans are borrowed by public to fulfill company’s requirements. To Investor bond offers stable return compared with equity stocks.The coupon rate of the bond determines the interest rate that the bond holder gets as return. Bond can be issued   at discount or a premium, depending upon in interest rate prevailing. This means when the interest rates are going high bond price rates goes down. So whine the interest rates goes done the investor get more return out of the bonds.

Risks Associate with Investment Grade Bonds

Bond holders stand to lose if the general interest rate goes above the coupon rate of the bonds and this is known as interest rate risk of bonds.

Return from bonds can after be lower than the inflation and this is called the inflation risk of bond. Sometimes inflation rates are suddenly goes high so the return by the bond may not sufficient to recover the effect to inflation.

Corporate bonds issued by the company so sometimes company might get bankrupt and investor unable to get the return of the bonds.

So giving loans for such high risk companies might be very risk-full for the investor. There is rating system for companies and the ratings are rated by AAA rates to D rates.

When invest or plan to buy a bond keep in mind to buy it from higher rating bonds such as AAA rated bonds. Don’t tend to buy junk investment grade bonds which offer higher interest rates but lower ratings. The point is they might not able to pay the bond.

Bond is lesser liquid and it’s infrequently trades .unlike stocks bonds not bought or sold market very frequently.

How to invest on Bonds

Usually bonds are brought directly issued by companies. The actually purchase of investment grade bonds is done by bond broker or dealer , the bonds broker might be your stock broker or a separate types of bond broker and it depends.

Unlike equity stocks, the price of bonds is not determine the result of demand and supply. instead its price is inversely related to prevailing interest rates. when interest rates goes up. the bond price goes done vice versa.

We are plan to focused more on investment grade bonds and other types of bonds in our future articles for more information on please check our “Bond” category for more information s.

Source by ;Smart investor series by Divesh Nair