How to Buy Coporate Bonds

You can invest in corporate bonds through a mutual fund.

Corporate bonds can be a good investment, but it is important to do your homework before putting any money on the table. There are many different varieties of corporate bonds on the market, representing investments in both strong companies and weak ones. When you invest in corporate bonds, you are essentially loaning money to the company, and you want to make sure you get your hard-earned money back.

Things You'll Need

• Bond mutual fund prospectus
• Financial publications

Instructions

1. Understand the differences between the various types of corporate bonds. Mutual funds that invest in high-quality corporate bonds use titles like "high-grade corporate bond" or "investment-grade corporate bond." Funds that invest in riskier companies generally use the term "high-yield corporate bond." These funds generally pay a higher yield, but they also carry a higher risk of default.

2. Read several quality financial publications like Barron's, The Wall Street Journal and Investor's Business Daily. Look for stories and ads about mutual funds that specialize in corporate bonds.

3. Request a fund prospectus from a mutual fund family that offers corporate bond funds. Vanguard and Fidelity Investments are two of the most popular families (see Resources) and offer a number of bond funds, including those that invest in corporate issues. Read the prospectus carefully, particularly the parts about the bonds in the fund, investment expenses, fees and current yield.

4. Complete the application for the corporate bond fund you wish to invest in. Be sure to provide all requested information, including your name, address, phone number and Social Security number. You might also be required to provide information about your job and income.

5. Mail the completed application, along with your check, to the address listed on the mutual fund application. Read the instructions carefully, since some mutual fund families use a separate address for receiving overnight mail.

References

• Securities Industry and Financial Markets Association: Types of Bonds

Resources

• Fidelity Investments: Mutual Funds
• Vanguard: Mutual Funds