What are bonds and what is the meaning of bonds?

Good day.

Today I will talk about one tool that can provide a reliable and stable passive income. They are actively used all over the world. But in our country, many still do not understand what its features are. A bond is a form of debt.

What are bonds and what are they for?

In simple terms, this is a type of security. You lend money to a company that in return promises to pay coupons, that is, interest.

An IOU is issued by an issuer, that is, a legal entity that needs money, this status can even be with the state.

The structure that issued the bond to the market undertakes to return the money received at the specified time with interest. For an ordinary person, this is a loan on the contrary. You lend money with the expectation of profit.

Bonds are placed by banks, federal and local authorities, companies of various forms of ownership. They are released when there is a need for additional finance for specific tasks.

For example, the authorities can cover a budget deficit or implement a large-scale project. Companies use the money they receive to launch a new product or upgrade production.

The main properties of bonds are a certain period of validity, priority in income in bankruptcy, a priority right in the liquidation of a company to indemnify losses.

What do they look like?

Looking at the photo today, one can only imagine what the bonds looked like many years ago.

Today they are distributed electronically. Nobody physically prints them.

How do they work?

The existence of bonds is based on the fact that the state and companies, like ordinary people, need additional funds to solve primary problems. The optimal solution was devised: the issuance of debt. One of their varieties is just bonds.

A person who purchases such a security becomes a creditor. Of course, he is not ready to lend his savings to someone just like that. Therefore, the issuer guarantees not only the return of money, but also interest payments. The bondholder receives them regularly.

At the same time, it is prescribed in advance on what dates and in what volume you will receive interest payments. When the bond expires, you will be refunded its face value.

What rights does it give?

The basic right is to get back your investment in the form of money or property. This should be agreed in advance.

In addition, the holder has the right to receive interest (or coupons). They are calculated from the face value. Other property rights may be provided for debt repayment.

An important point: when a company goes bankrupt, bondholders receive money earlier than stockholders.

Differences between bonds and stocks

There are several main differences between these two concepts.

  1. The bondholder is only a creditor. If you have a share, then you are considered one of the members of the joint-stock company, the owner of a small share of the company.
  2. Promotions do not have an expiration date. It is limited only by the lifetime of the AO itself. Bonds are issued for a specific period of time.
  3. From shares, income is not fixed, as it depends on the profit that the company receives. The key factors in this are fluctuations in market prices, the size of dividends, the tax climate, and the level of inflation. How much money you will receive from bonds is known in advance. The rate of return is set initially. There are even two forms of income: as a capital gain or as an interest rate.
  4. Interest on bonds in bankruptcy is paid out earlier than interest on stocks.
  5. The owner of the share has a vote at the meeting of shareholders, the holder of the bond does not have such powers.

Bond characteristics

There are several key characteristics of these securities. These include:

  • nominal cost;
  • price and profit;
  • term of application;
  • form of income;
  • profitability and risks;
  • credit rating.

Let's analyze each of these points in more detail, so that even for beginners everything becomes clear.

nominal cost

Every bond has it, no exceptions. It is determined by the issuer when it puts the security on the market. At this cost, the bond will then be redeemed.

Coupon size is set as a percentage, which are calculated from the same cost. Bonds in the Russian market, most often, cost 1,000 rubles. The face value of Eurobonds is $1,000.

Price and profit

The price depends on various factors. For example, on which coupon was originally set and how it relates to the level of rates in the market. The price of a bond is calculated as a percentage of its face value.

Corporate bonds are more profitable than government bonds (also called sovereign bonds), but they are more risky. The amount of the risk premium depends on the reliability of the issuer.

Term of circulation

There are three types of bonds of this type:

  1. Short-term bonds are issued for a short period — up to 5 years. Companies of this type are practically not used, it is easier for them to take a loan for this period.
  2. Medium-term bonds are redeemed within 5 to 10 years.
  3. The owner of a long-term security expects a return of money within a period of 10 to 30 years.

There are bonds that, due to certain features, can change the circulation period. For example, with the right of early repayment, prolonged or perpetual.

Form of payment of income

In this case, the bonds are divided into interest or discount. For discount payments, the probable profit is set as the difference between its face value and price.

For coupon bonds, the income is defined as a specific percentage of the face value. Payments are made for the duration of your ownership of the security, usually quarterly or six months. The coupon size can be variable or fixed.

Profitability and risks

Bonds carry much less risk than stocks, they are even compared to bank deposits. It is for this reason that it is one of the optimal financial instruments for dummies. You need to understand that risks still exist, even though this is one of the safest and most reliable assets.

Average yield of bonds from 5 to 15%. Reliability directly depends on the prospects and solvency of the issuer issuing the asset. The more reliable it is, the lower the profit.

There are «junk» or «junk» bonds. The yield on them from 15%, however, the risk of bankruptcy of such issuers is very high.

What is the accumulated coupon yield on bonds and how to calculate it

In short, this is a feature of accounting for interest due to the investor.

Since payments are made at regular intervals, when selling bonds, the investor does not receive another payment. He loses the profit due for this time period.

However, immediately after receiving the coupon, the security becomes illiquid. This dilemma is solved with the help of accumulated coupon income.

The cost includes the amount of interest that has accumulated over the past period of time. It is calculated from the last payment. The same markup value is automatically calculated in all trades. This premium is called the accumulated coupon income. This is the return you could have received had you not sold the bond.

To calculate the accumulated coupon yield, you need to use the values ​​for the duration of the coupon and its size. It is not necessary to do this on your own, since the exchange calculates the accumulated coupon income every day, accruing it to the owner after the close of trading. The current accumulated coupon income can be viewed in the Quik terminal.

Bond classification

To navigate this market well, you must understand what bonds are. They are distinguished by duration, issuer, form of issue, methods of repayment and methods of securing loans.

Depending on the issuer

Securities are foreign, corporate, municipal and state.

Government bonds are issued by the state itself. The money received in this way is spent in several ways:

  • cover the deficit of the treasury;
  • send money to programs for the development of infrastructure, housing and communal services, the fulfillment of social obligations;
  • regulate the economic situation in the country, influencing prices, inflation and much more.

Municipal bonds are in many ways similar to government bonds, only they are issued by local authorities — the administrations of republics, territories or regions. Municipal property acts as a guarantor for them.

Corporates launch commercial enterprises into the market. The returns are higher, but the risks are also greater.

By expiration date

On this basis, bonds are divided into two types:

  1. With an agreed repayment date.
  2. Without a fixed period of circulation: perpetual, revocable and several other types.

Perpetual securities do not have a maturity date. When an investor buys it, he owns the bond indefinitely until he sells it to someone else. The issuer has the option to forcefully redeem it.

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The issuer may return callable bonds before their maturity date. At the same time, it is predetermined under what conditions this will be done:

  • with premium;
  • at face value.

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Redeemable bonds give the investor the right to return it to the issuer ahead of time, receiving their face value.

Extendable bonds allow you to extend the term of their validity, while continuing to receive the interest due under the contract for the entire period.

For deferred loans, the issuer may take a deferment to pay interest later than the specified date.

According to the form of issue for documentary

Documentary securities include securities, which are a specific document with the name of the issuer, details, face value and other necessary information.

Non-documentary bonds do not have a material form. This is only a property right, which is assigned to the owner in a register established by law.

Depending on entry into the register with the issuer (ownership order)

There are two varieties of this type:

  1. Nominal. The borrower maintains a register of bonds. If bonds are lost, it is possible to restore them without any problems.
  2. To the bearer. The register is not kept, and if the bond is lost, you can restore your rights only in court.

Depending on how you earn money

On this basis, two more types are distinguished:

  1. Coupon — a fixed percentage is regularly paid.
  2. Net discount — the investor receives income in the form of a premium, which is the difference between the redemption and purchase price.

By coupon payment method

On this basis, six varieties are distinguished:

  1. With a floating interest rate — income depends on the rates in the money market.
  2. Solid interest — a fixed rate is set in advance, tied to the face value and cannot be changed.
  3. Indexed — both the coupon and the face value of the bond are subject to the index.
  4. With payouts of choice.
  5. With an evenly increasing interest rate.
  6. Mixed type — floating and fixed types are combined.

By the nature of the appeal

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There are two types of securities:

  • ordinary;
  • convertible.

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The owners of the latter are allowed to exchange them for the company's shares for a certain period of time. If the investor does not take advantage of this opportunity within the specified period, he loses this right, even when he remains the holder of the bond.

On the basis of reliability

Such bonds are junk and worthy.

Worthy ones are issued by issuers with a spotless reputation.

Waste is called speculative securities with high income and risk.

By way of securing a loan

On this basis, there are such varieties:

  1. Mortgages are secured by collateral.
  2. Guaranteed — provided by third parties.
  3. Without collateral — based solely on investor confidence.

Depending on the type of security

There are 3 more types in this section:

  1. Mortgage — issued on the security of real estate or land.
  2. With floating pledge — securities are secured by movable property: equipment, cars, materials.
  3. Under the security of securities.

By bond redemption method

More bond options:

  • with repayment in different periods of time;
  • with a one-time payment at face value;
  • with a gradual payment of a fixed share.

Depending on the form of debt repayment by the borrower

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Securities are divided depending on how the reimbursement will take place.

There are two options:

  • compensation in cash;
  • compensation in kind.

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Pros and cons of issuing bonds

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The benefits of this fundraising tool include:

  1. Getting money for large projects without the risk of investors interfering in the management of the company;
  2. The issuer himself determines the parameters of the loan, including the terms of repayment and circulation, terms, interest rate, conditions.

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This financial instrument also has its drawbacks. The issuer is exposed to risks, since bonds are a hard debt obligation. If the project, under which the money was taken from investors, does not work, they will still have to pay off creditors. You have to risk your assets. The probability of bankruptcy in such a situation increases.[/ box]

Investing in bonds — advantages and disadvantages

Advantages of investing in these securities:

  1. Guaranteed and high profitability.
  2. Low cost. Most bonds can be bought for 1000 rubles.
  3. Wide selection.
  4. Ease of selling and buying.
  5. Opportunity to increase profits without any special risks by reselling bonds.
  6. High liquidity

The disadvantages include the lack of guarantees for the return of funds. Unlike bank deposits, these investments are not insured. The value of bonds can rise or fall due to the economic situation in the country.

How to make money on bonds

[box type="blue"]Bonds is another name for bonds, which comes from the English concept, which means «long-term» in translation. By definition, these are long-term investments that you can earn on if you have investments.

You should start your search with an estimate of the prospective profitability. Be sure to study all available information about the company in which you plan to invest. You can calculate the possible income today using online calculators from brokers who compile ratings. If an issuer offers a high return with a low credit rating, this should alert you.

There are various investment strategies. For example, you can buy several well-known reliable bonds, allocating part of the funds to invest in riskier issuers.

How much can you earn

On average 6-9% per annum. The specific amount depends entirely on your investments, as well as on the situation on the market. To be more precise, from the refinancing rate. As a rule, they are issued at the level of this rate or slightly higher. However, their market value may change regularly.

For example, a bond was issued for 100 rubles at a rate of 10%. Later, the Central Bank lowered the rate to 5%. In this case, their profitability will be 2 times higher than that of the current ones. But it should be borne in mind that this financial instrument does not have such a run-up in terms of profitability.

The face value is a constant value, therefore, after the rate decrease, their price will increase by almost 2 times. This will make the income close to the market average.

Is it profitable to buy?

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Definitely yes. Due to financial transactions with bonds, you can receive more than on a bank deposit. True, it must be borne in mind here that not all of these securities are able to bring an equal or comparable income.

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I don't advise getting involved in third tier or junk bonds. They offer high rates but are very risky.

Is it possible to buy on IIS

Yes, it is possible and even necessary. Over the past year, investor interest in this instrument has grown a lot, it seems that bonds are becoming a full-fledged alternative to bank deposits.

IIS is an individual investment account. Unlike a simple brokerage account, it has a number of additional advantages. For example, you can return from the state 13% of the amount of the first investment up to 400,000 rubles or receive tax exemption on income from securities transactions.

Where can I see the list of releases available for purchase?

You have two ways to purchase bonds, where all available lists will be available. For example, securities are sold in branches of large banks.

They are also on the stock market. To start trading, you need to conclude an agreement with a broker. After gaining access, install a special program, deposit money into the account and start trading.

There are many online platforms that provide the information you need. For example, «Evolution». You can find the parameters and lists of issues available for purchase on large aggregator sites — cbonds or rusbonds.

How much is 1 piece?

In Russia, almost all bonds cost 1,000 rubles. There are rarely exceptions, the cost can vary from 200 to 1,500 rubles. Usually these are unpopular papers.

Common federal loan bonds cost 1,000 rubles. The cost of Eurobonds is $1,000.

Deposit or bond: which is better?

Definitely bonds. Analytics demonstrate consistently high profits on them. When calculating, it is necessary to take into account not only profitability, but also such factors:

  • the amount you are willing to spend;
  • investment period;
  • goals;
  • time spent on opening an account.

There are various calculation formulas. True, if the amounts are small, then the difference in absolute profit will be minimal — just a few hundred rubles, although in percentage terms bonds can be 50-100% more profitable than bank deposits.

Interest rates on bonds are much higher than on deposits. Federal loan bonds, by definition, will be more reliable than any bank. In case of early withdrawal, attention should be paid to the accumulated coupon income.

The main disadvantage is the need for a brokerage account. If you have a small amount, then you will not receive practically any real profit.

Where and how to buy Eurobonds

This is the name of Eurobonds that are issued in foreign currency.

Although they have the prefix «euro», but now it's just a tribute to tradition. It can be a wide variety of international debt obligations. Basically, for a period of 3 to 30 years. Among them are high-yield bonds.

Independently on the Moscow Exchange

For Russians, one of the easiest options to buy Eurobonds is on the Moscow Exchange. This is the most profitable way. You just have to figure everything out on your own, spending a lot of time. But then you can already trade anything.

You will need to open a brokerage account, transfer money to it. Install and connect the trading terminal application, and then set up the Eurobond withdrawal table.

The process itself practically does not differ from the acquisition of domestic securities. Having chosen the bond you like, we check its status and fill out an application. If everything went well, the corresponding amount will be debited from your account.

As part of the PIF

Mutual investment funds are mutual investment funds, which include reliable Eurobonds. In this case, the securities themselves are acquired by the management company. It forms a fund, from which each investor acquires a certain share.

ETFs

Another interesting and profitable option is an ETF fund, which allows you to invest in several Eurobonds at once. In our country, this tool is not yet popular, but it has great prospects.

The principle of operation is similar to the PIF. It purchases securities from issuers, and investors purchase part of the fund in the form of shares. You can make such transactions only if you have an account with a broker.

In the bank

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You can buy Eurobonds directly at the bank. They are considered the main alternative to foreign currency deposits. Many opt for this tool to protect themselves from the depreciation of the ruble.

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How to choose where is best

I recommend acting through brokers. In this case, the basic parameters for trading will be available to you. In short, these include:

  • nominal cost;
  • issuer;
  • profitability;
  • market price;
  • coupon type;
  • coupon size;
  • date of payment of coupons and redemption of the bond.

Top Brokers

To make it easier for you to navigate this market, I will tell you which brokers you should pay attention to.

To select the best specialists who will meet your requirements, I advise you to focus on the main criteria. This is the presence of a license, a small amount for opening an account, access to foreign shares and Eurobonds.

I will provide a full review below.

Надежные российские брокеры
Название Рейтинг Плюсы Минусы
Финам 8/10 Самый надежный Комиссии
Открытие 7/10 Низкие комиссии Навязывают услуги
БКС 7/10 Самый технологичный Навязывают услуги
Кит-Финанс 6.5/10 Низкие комиссии Устаревшее ПО и ЛК

Acquisition calculation by example

Most securities are paid semi-annually. Money is automatically credited to your account. You can immediately dispose of them as you wish.

For clarity, I will give an example. The yield on the bonds is 11.75% per annum. Its cost is 1,000 rubles. For a year you will have two coupons, that is, two guaranteed payments.

Each of them in this situation will be 58.75 rubles. To get this amount, you need to multiply the face value of 1.0 by 0.1175 and by 0.50. Annual income from one bond will be 117.5 rubles.

Investor reviews

Мнение эксперта
Владимир Сильченко
Частный инвестор, эксперт по фондовым рынкам и автор блога "Капиталист"
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According to the reviews, investors positively assess this financial instrument. Attracts the market interest rate, the calculation of which is carried out at its real market price.

When dealing with government securities, the risks are almost completely eliminated. In addition, you are guaranteed a higher planned income than on deposits.

Taxation of Eurobonds for individuals

Eurobonds are subject to a standard list of tax payments:

  • coupon tax;
  • on income (13%),
  • on the exchange rate difference (13%).

If the broker is in a foreign jurisdiction, you need to pay taxes yourself. To do this, a 3-NDFL declaration is filled out, which is submitted no later than April 30 of the next year to the inspection at the place of residence.

Payment — no later than July 15.

Is income tax and personal income tax paid with OFZ

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Income tax has now been abolished for corporate bonds if it is not higher than 5% of the refinancing rate.

The payment of personal income tax may be required only in some cases when the accumulated coupon income appears.

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Conclusion

In conclusion, I can advise you to purchase bonds if you are new to the market of financial instruments, and there is money for investment. Even small ones. This is an easy way to get more profit than from deposits. At the same time, it will give you the opportunity to get an idea of ​​​​financial instruments, so that later you can trade shares and use the full range of exchange services.

That's all for today. I hope the information you received was useful and important. Subscribe to articles to keep abreast of what is happening in the domestic economy in the future.

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