Corporate bonds

Whilst shares, unit trusts & investment trusts are a share of the ownership of 1 or more companies, a corporate bond involves the lending of your money to a company for a fixed time length and for a fixed interest rate. At the end of the period covered by the bond, your capital will be returned. The amount of capital returned can vary, however, as the price of a corporate bond does change dependent on market demand.

An advantage of buying a corporate bond over buying equity in a company, is that you will be 1st in the line of creditors to be paid if a company fails. However, you still should anticipate the risk of default by the company, and higher interest rates generally indicate a higher risk of default. In general FTSE 100 companies will be at less risk and therefore pay less interest.

Buying individual corporate bonds is possible via most stockbrokers. However, it's easier to buy a fund rather than an individual bond. For example, the Jupiter corporate bond fund is investing ~90% in corporate bonds, 6% in gilts (treasury bonds) and the rest in cash. Hargreaves Lansdowne (http://www.h-l.co.uk) is one stockbroker currently allowing you to buy this fund. In terms of risk, corporate bonds are generally less risky than equities and more risky than cash & gilts. Typically, people who are approaching retirement and seek a steady income will sell some of their equity funds and buy corporate bond funds to reduce their risk.