How do I buy corporate bonds?

You can buy corporate bonds through a public offer when they are first issued, which is known as the primary market.

You can also buy some corporate bonds listed on a stock exchange, such as the Australian Securities Exchange (ASX), which is known as the secondary market.

Public offer

Once a company has decided that it wants to raise money through a bond issue, it will publish a prospectus outlining all of the key features and risks that investors need to be aware of.

You can then apply directly to the company to buy bonds but it’s very important to thoroughly read and understand the prospectus first.

The prospectus would also specify a minimum amount that you must invest in order to take part. Each bond usually has a face value, or issue price, of $100, so the minimum investment would be multiples of that amount.

On the stock market

Buying bonds that are listed on the stock market is like buying them second hand, rather than brand new.

Just like when you buy shares from a stock exchange like the ASX, you have to pay the market price, which may be higher or lower than the face value of the bond.

This means you could get them at a discount to the face value (which will be repaid on the bond’s maturity date), but you might also have to pay a premium.

When buying bonds in this way, you would also have to pay a brokerage fee, for example a minimum of $10.00 through CommSec.

Things to consider before buying:

• Timeframe – what is the maturity date of the bond and does it suit your needs?
• Interest rates – what is the interest rate and will it be fixed or floating?
• Interest payments - will the timing of the income payments suit your needs?
• Diversification – does the bond help diversify your investment portfolio?
• How safe is the issuer – is the company financially strong enough to maintain interest payments and return your investment when the bond matures?
• Market value – Will you be impacted by changes in market value?

Corporate bond funds

You can also invest in corporate bonds through managed funds that pool together your money with that of other investors and use it to buy a portfolio of bonds.

There are also ‘passive’ style exchange traded funds that aim to track the performance of bond market indexes.