Corporate bonds and gilts How to buy gilts and corporate bonds

How to buy gilts and bonds

You can invest in gilts and corporate bonds directly or via investment funds

There are two main options if you want to buy fixed interest investments – you can invest directly in individual bonds or you can invest in collective investments such as unit trusts.

Direct investment in gilts and corporate bonds

You can buy gilts directly from the government's Debt Management Office.

You can buy corporate bonds from the London Stock Exchange's Retail Bond Platform. They require a minimum investment of £1,000. Unlike shares, they don't give you a stake in the company, but make you a creditor, ranking above shareholders in the pecking order if the company becomes insolvent. 

You may not get your full investment back in this instance – only a proportion of the assets that are left. But while shareholders will lose everything if a company goes bust, bondholders often recoup a significant proportion of their capital. 

You're not covered by the Financial Services Compensation Scheme, so it is important to assess the strength of the business you are lending to.

You can also buy gilts and corporate bonds through a stockbroker of fund supermarket.

Find out more: Fund supermarkets reviewed – our unique ratings for leading brokers

Investing in bond funds

Bond funds are collective investments, such as unit trusts or open ended investment companies (Oeics). These funds pool your money with other investors' and invest it in a broad range of gilts or bonds.

Unlike direct investment, there is no maturity date with bond funds. The manager invests in dozens, or even hundreds or different bonds or gilts.

By investing in multiple bonds within a fund, you are able to spread risk. You can expect to pay an annual charge of between 0.5% and 1% for investing through a corporate bond or gilt fund, or much lower if you choose a corporate bond or gilt tracker fund. 

Find out more: Unit trusts and Oeics – understand how investment funds work

There are two types of gilt funds available to investors:

  • Gilt funds, which must have 80% invested in UK Gilts.
  • Index linked gilt funds, which must have 80% invested in UK Index Linked Gilts.

There are four types of corporate bond funds available to investors:

  • Corporate bond funds, which must have 80% invested in investment grade corporate bonds
  • Global bond funds, which must have 80% invested in overseas investment grade corporate bonds
  • Strategic bond funds, which must have 80% invested in fixed interest, including convertibles (bonds that can be converted to shares), preference shares and permanent interest bearing shares
  • High yield bond funds, which must have 80% invested in high yield bonds

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Last updated:

July 2016

Updated by:

Michael Trudeau

 

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