A corporate bond is a debt-based financing option for companies. Companies issue out corporate bonds when they want to raise money to fund their projects or daily operations. As an investor, you lend money to the company and the company pays back the money that they owe you, with interest after a certain amount of time.
Where to buy Corporate bonds
You can buy corporate bonds from the Johannesburg Stock Exchange. Investors can buy corporate bonds through the help of a broker. buying corporate bonds works similarly to buying any other stock on the stock market.
There are different levels to the quality of corporate bonds, some bonds are high quality, also known as “Triple A” bonds. Other bonds are somewhere in the middle and the lowest quality bonds are known as junk bonds.
It’s very important to choose bonds that are triple A rated, these bonds are super safe and are guaranteed to give you returns plus your money back. Junk bonds are not very safe, they often offer greater interest to compensate for this. A junk bond doesn’t necessarily mean that the company has a history of defaulting on its debt.
A corporate bond issued by a new company with no credit history might be considered as a junk bond. This is because the company doesn’t have a history of creditworthiness. It’s the same as individuals with a low credit score because they haven’t applied for any credit.
How to buy a corporate bond?
This is a step by step guide on how you can move from where you are to buy a corporate bond in South Africa.
1. Find a Broker
You can’t trade or buy equities or bonds without a broker. It is possible to buy RSA Retail Savings Bonds without a broker because they are from the government. A broker is needed for purchasing bonds from corporate entities.
In order to find a reliable broker, you can go directly to the JSE website to find a reliable broker. They will ask you some questions like how you would like to be contacted. We recommend using Easy Equities or Standard Bank.
You will use the platforms provided by these stock brokers to buy your corporate bonds and other equities.
2. Buy a corporate bond
After starting out with a broker, the next thing you need to do is start investing. You will have direct access to the JSE, you can use it to buy corporate bonds. Buying corporate bonds is not very difficult. Brokers normally provide investors with demo accounts.
Use the demo account offered by your broker to practice how to buy equities and bonds. A demo account will credit you with money, this money is usually around R100 000 but it’s not real money. It’s money that you should use for practising and getting familiar with how the market works.
This was a guide on how to buy corporate bonds in South Africa. Do you have any thoughts or questions? Comment below.