Retail investors could soon have greater choice among corporate bonds. Three bonds from London Stock Exchange Group will become available to the public early next week, and more bonds could follow suit in the coming months by other companies.
Historically, corporate bonds required minimum investment amounts beyond the reach of individuals. That is now changing. While there still may be minimum investment amounts on these bonds, prices will now range from £100 to £2,000 rather than in the hundreds of thousands.
New rules came into force earlier this year aimed at encouraging more companies to raise money on capital markets to support their growth plans, and to make it easier for the public to get involved.
Corporate bonds have historically been the domain of institutional investors rather than retail investors due to complexities around documents and disclosures.
Companies who wanted to include UK retail investors had to publish an additional prospectus to issue bonds in denominations below €100,000, in line with European requirements. That dissuaded companies from going the extra mile. It meant that retail investors typically had to buy a bond fund to access this type of investment rather than buy individual bonds.
A single set of rules is now in place, and there is no longer a requirement for bond issuers to publish prospectus summaries. That means retail investors should find it easier to subscribe for bonds alongside institutional investors.
What is a corporate bond?
A corporate bond is a way for company to borrow money. The company issues a bond to investors and in return promises to pay a set rate of interest twice-yearly over a specific length of time. At maturity, the issuer pays back the face value of the bond to the investor.
The following article contains more information about corporate and government bonds.
Are corporate bonds risky?
Corporate bonds can be higher risk than the type of government bonds that retail investors have typically bought in the past, such as gilts. Therefore, there might be a learning curve for people dipping their toe into buying individual corporate bonds for the first time.
It is important that anyone looking to invest in corporate bonds does so as part of their long-term investment strategy and has an understanding that things can occasionally go wrong.
How do I buy and sell a corporate bond?
AJ Bell customers can buy and sell corporate bonds in the same way as other investments. The selection of corporate bonds is available on our website, and we expect the range to increase as the year progresses.
Dan Coatsworth: Head of Markets
Dan Coatsworth is AJ Bell's Head of Markets. Dan has been with the company since December 2012 and has more than 18 years' experience in the industry, following the markets and all things investing. He...
