bonds and debentures

Seven Common Corporate Bonds and Debentures Buying Mistakes That Everyone Should Avoid


Investing in bonds has become increasingly popular in the past few years. Bonds and debentures are a great addition to the investment portfolio. Investors can usually expect a stable and fixed income by investing in bonds.

However, before investing in any bond, say debenture bond, one must be careful. Certain mistakes can cause financially expensive losses in the long run. Debt instruments like bonds and debentures require smart investment strategies.

In this article, we will discuss how you can avoid common corporate bond-buying mistakes.

Bonds & Debentures

Bonds and debentures may be used interchangeably in many places. However, the two are not the same. Debentures are primarily a type of bond.

Both bonds and debentures are debt investments and corporate companies and governments announce bonds and debentures to raise funds.

Investors purchasing bonds and debentures can expect a long-term stable income in the form of bond interest rate. It adds to the stability of the investment portfolio of the investor.

Common Bonds Purchasing Mistakes and Call-to-Action

In order to discuss the correct bond purchasing habits, it is crucial to understand the common mistakes as well.

Here are some of the common bond and debenture purchasing mistakes and the solution to these problems:

  • Interest Rate Fluctuations

Debenture bonds are subject to market risks and so, the interest rate keeps fluctuating.

It is vital to understand that the market may hit highs and lows and as per the perception of the market, the interest rate also changes. When the bond price is high, the interest rates decline and vice-versa. 

  • Assumptions to be Avoided

Hearing a company’s name often in the news is not enough to make assumptions. To complete the obligations, a company must be sound and stable. Such a quality can only be known when you, as an investor, check out the company’s finances and past trends. It gives you clarity on your investment.

  • The Claim Status of Bond

How are you going to claim your bond in case the company is not able to repay the bond amount? This is what you need to know about the claim status of a bond. Some bonds are secure and have collateral.

So, in case the bond fails, the investor can claim the collateral. Debenture bonds, on the other hand, are collateral-free. So, in such cases, clarity over claim status is a must.

  • History Check of the Issuer

Even the most popular companies may end up failing bonds and debentures. So, understanding the history of the insurer is crucial. Make sure to go through the background of the companies to know their repayment capabilities.

  • Poor Market Research

Investments require much more than financial capabilities. Poor research can lead to failed investments and even bankruptcy.

So, before you invest your hard-earned money anywhere, make sure to do thorough research from your end. Do not rush when it comes to investing your funds.

  • The Inflation Rate

The inflation rate can affect your debenture bonds to a great extent. Overlooking the inflation rate and its effects is not a good idea.

So, for investing in bonds, you must go for a calculative decision. Considering the inflation rate and the interest rate that can help you maintain the same purchasing power irrespective of the inflation rate.

  • Market Perception Keeps Changing

Market perception keeps changing now and then. The market value of a debenture bond can suddenly spike or even go down.

Knowing the exact market perception is never possible. You cannot predict the market but only have a perception of where it will head. Accordingly, you need to choose the investment. However, be ready for the market fluctuations as well.

To Sum Up

Debenture bonds are a popular debt investment option. It can level up your investment portfolio. Before investing in bonds, you must be calculative and informative about your decision. Know the market trends, the expected fluctuations, inflation rates, and the claim status of your bond. 

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