Corporate Bond Funds

Corporate Bonds are similar to Government ‘Gilts' in that they are issued as a debt instrument by a company and pay a regular income or ‘coupon' to the investor as well as a promise to pay the original capital at some pre-determined date in the future. They are less volatile than equities (shares) but are not risk-free. They are ideal as income-producing investments but the capital at redemption is not guaranteed (except in the case of Government bonds) and in any event you may get back less than you paid at outset. For example: suppose you pay £1-10 for a bond with a nominal or ‘par' value of £1-00. On the redemption date you will only be entitled to £1-00 and will thus have made a capital loss. The ‘yield' or income on the bond must take into account the eventual capital gain or loss if the bond is held to redemption.

In an investment and financial planning context, funds are generally ‘collective investments'. That is to say that an individual's money is ‘pooled' with those of many other investors to invest across a wide range of shares or other investment media thus giving a spread of risk that would normally be unobtainable to one individual.

Examples of commonly used funds in the UK would be Unit Trusts; Open-Ended Investment Companies (OEICS); Investment Trusts, Life Funds and Pension Funds.

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