Corporate bonds in India are popular investment vehicles for investors and convenient tools for companies to gather funds for their day-to-day operations. Understanding the different aspects of corporate bonds is crucial to making investment decisions. Interest rates and maturity dates are among the most common pieces of information that are easily available. However, there are other important factors. The term prospectus is not a new one, and in this case, its meaning remains the same. It is an in-depth insight into corporate bonds.
“What is a corporate bond?” Many can answer this question in a single sentence. However, a prospectus of corporate bonds carries all the important information an investor should have while making the final call. Join us as we explore the different types of corporate bond prospectus, their features, and their benefits.
A prospectus has the major details of the issue than we tell you about it. What you get to understand is the features of the bonds, asses the risk involved, and the company’s financial health. Wouldn’t you want to know them before investing? You definitely should take a look at what the prospectus has.
Key Takeaways
- Comprehensive details like interest rates, credit ratings and maturity dates are provided in the prospectus.
- Assess the risk by analysing risk factors and credit ratings.
- The legal information of the company is provided in it.
- Understand if the particular investment meets your goals.
- The corporation ensures to be transparent about the issue and adheres to the regulatory requiremnts.
What is the Prospectus of Corporate Bonds?
A prospectus contains all the features, offerings, and risk factors, helping investors decide if the respective corporate bond suits their investment objective. Bond issuing companies are responsible for issuing prospectuses with all necessary and accurate information to investors.
Reading and understanding a prospectus can be challenging and time-consuming. Inventors may want to ignore it, given the plethora of information available online. However, it is important to note that a prospectus can best explain the respective corporate bond and all its features.
Types of Prospectus of Corporate Bonds
Public limited companies must issue a prospectus before issuing any security. Below are the different types of prospectus corporate bond issuers can offer in India.
Preliminary/Red Herring Prospectus
The initial prospectus that a corporation offers to the marker is the preliminary prospectus. It contains some of the details of the bonds. The aim of this formal document is to scope out the demand in the market.
Final Prospectus
It contains all the information the public may require before investing in corporate bonds. The finalized background information, offer price, and the number of certificates or stocks are also mentioned here. Consider this the ultimate document and base your decision on it.
Shelf Prospectus
Companies must present a shelf prospectus for multiple issues of bonds. Any private or government company can file this prospectus with the registrar before making the first offer for the bond. The best part of opting for a shelf prospectus is that a company will not have to issue a new document each time it wants to float a bond.
Abridged Prospectus
It is a memorandum showcasing the summary or key features of a prospectus. Investors, market regulators, and underwriters can get the issue’s basic idea from this document. Section 33 of the Companies Act makes an abridged prospectus compulsory before the issuance of securities for public investments. SEBI has specific regulations for drafting this document.
Deemed Prospectus
If a company wants to avoid SEBI’s regulations regarding the issuance of bonds, it can file a deemed prospectus. The document will allow the company to allot securities via an intermediary and be considered a legal document for sale under specified circumstances.
Contents of a Prospectus of Corporate Bonds
The significance of a corporate bond prospectus in maintaining transparency and generating information cannot be denied. The following factors are common characteristics of such prospectuses.
Interest Payment Timing and Conditions
Corporate bonds have a pre-decided interest rate or coupon. Since the final returns of a bond are calculated based on interest rates and its face value, investors seek this information. Further, a payment schedule is also necessary for investors to better plan their finances. A prospectus includes information on both.
Maturity Date
Different bonds come with various tenures, like short-term, mid-term, and long-term. The maturity date when the principal amount and accumulated interest are paid to the investors. It goes without saying maturity date is crucial in investment as people might have different investment goals and financial requirements. It is important to invest in a tenure that goes with the respective financial objectives. If you need certain returns after two years, investing in a four-year-long bond will not be the correct decision. Moreover, the different terms help determine the reaction to market factors and taxation. The prospectus will mention the date of maturity to enable informed investments.
Credit Rating
Credit rating agencies like CRISIL, CARE, ICRA, and IND analyze various company factors and then assign credit ratings to indicate the risk factors associated with investing in said company’s bonds. The ratings can range between AAA and D or lower, where the higher the rating, the lower the risk of default by the company. Credit rating is a vital aspect when selecting an investment option. A bond offering the highest interest rates may not be recommended if the credit rating is not up to par.
Call Provisions
Market rates keep fluctuating based on various factors. Like investors, bonds and other securities issuing companies want to make the most of rate changes. A company may add a call provision to the bond prospectus for the same purpose. The special provision will allow them to make an early call before the bond matures. If a situation occurs when market rates improve, or a company wants to avoid paying high interest, it can call provision, repay the principal amount, and stop interest payouts. Later, the company can issue new bonds at lower rates as it sees fit.
Call Protections
It protects against early calls. A call protection provision guarantees payments for a certain period before the corporate bond is called.
Note that a prospectus may include risk factors associated with call provision and protection.
Other Contents
A prospectus of corporate bonds may contain a company’s general outlook, the issuer’s performance, the liquidity of the issue, the nature of the bond (secured or unsecured), plans for repayment funds earning, and price projection. Said information will aid investors in thoroughly analyzing the bond and its suitability for their investment portfolios.
Get the Latest Information and Invest in Corporate Bonds with GoldenPi
GoldenPi offers a comprehensive investment platform with the latest updates on corporate bonds, including the current rate, ratings, and so on, to guide investors of all sorts on a profitable investment journey. The platform includes a list of the corporate bonds along with interest rates, maturity dates, and other important information. Every plan and feature is easily accessible to all.
Complete your KYC, select the corporate bonds, and invest. You will receive notifications when the bond matures. Meanwhile, feel free to monitor your current investments and find new ones with GoldenPi.
FAQs about Corporate Bonds
1. Why do you need to go through a prospectus before investing in corporate bonds?
Investor can make a wise decision with their investments by reading the prospectus with details provided such as the features, interest rates, risks, financial health and the maturity date of the issue. You are kept transparent while they adhere to compliance with legal requirements.
2. What is the format for a prospectus?
The prospectus format generally contains details of the company, including its background, information on directors and management, financial statements, risk factors, legal factors, and other information. Each prospectus is drafted according to regulatory guidelines.
3. What if a company’s financial position changes after a prospectus has been filed?
The company must inform the registrar about the changes. The process for this is called the Information Memorandum. A specific time limitation and fees are applicable.
4. What are the two prime objectives of a prospectus of corporate bonds?
- A prospectus makes the bond, all its information, and company details transparent to the public.
- By filing a prospectus, a company abides by the legal requirements for issuing securities in India.
5. How can a prospectus help in analyzing the risk factor of a bond?
A prospectus includes the credit ratings of the respective bond(s), indicating the associated risk level. The mention of the bond’s nature, whether secured or unsecured, also helps determine the risk factors.
6. What is the easiest way to get information about a corporate bond?
Visit GoldenPi to learn all the important information about a corporate bond. Reading a prospectus for said bond will give you all the facts and information.
7. Do all corporate bonds have prospectuses?
Filing a prospectus is a regulatory requirement for issuing securities to the public in India.
8. How to find the best corporate bonds to invest in?
GoldenPi manages a list of the corporate bonds with the latest details. Check out the list and make your selection. Be sure to consider the credit ratings.
