The bond market for a person far from this sphere seems confused, inaccessible to understanding and too complicated to make money there. This is largely due to the abundance of tools used here. At first they give the impression of a rather obscure. Practice shows that investment in bonds justifies themselves if you try to delve into the working mechanisms of this sector. This income can become permanent and large enough if you make some effort.
Success will be yours
What gives a bond purchase? Their owner, having sufficient knowledge of how the financial market works in this sector, will be able to get good income. By the way, it can be calculated in advance - for this special mechanisms have been developed.
But do not invest money recklessly. You should be aware of not only the nominal value of the bond, but also the risks associated with investing in the selected sector. Being able to use the most effective debt instruments, you will come to success.
What you need to know
Having carefully studied your investment in bonds, you should be aware of the following issues before embarking on real work on the exchange:
- comparison of the benefits of acquiring various instruments;
- the ability to find data to calculate the profitability of an operation and its riskiness;
- the choice of the final option for investing money, based on calculations with minimized error.
To start successfully, you need to have an idea of the stock market tools and methodologies used in our time. It is recommended to study them with examples in practice - this helps to better understand the features of the work. Please note that buying bonds today is a popular topic for various educational programs. You can first take such a course, and only after that start work. Here you can find out whether a bond discount is really profitable or more often turns out to be a trick offer.
The objectives of investing money in bonds
Selling profitable bonds is a business that suits people who want to avoid unnecessary risks. At the same time, the income that can be obtained by such a methodology is greater than with the usual placement of money in a bank at interest.
How it works? A person makes investments in bonds, the profitability from such an investment then receives each month in the form of interest. Ideally, payments follow regularly. Income is predefined and fixed. That is, the system is almost the same as when placing money in a bank at interest, when the financial structure immediately tells you what profit the client can expect by providing them with a certain amount for use.
Features
A bank deposit can show a good result even with a short-term program, even if it is not significant for a wallet. As for bonds, one can talk about real income only when money is invested for a long period of time. The advantages of investing in bonds are that the level of income received will exceed the best programs that modern banks can offer. In addition, at any time, the owner can withdraw his money without losing interest that has already been accumulated.
What does it look like in practice? A bond is such a security that is produced by the issuer (enterprise).When a person who wants to invest available funds in a certain company acquires a bond, the issuer undertakes to pay the face value. This money can be received when the term of circulation for a security expires. Also, investments in bonds involve a monthly income at a pre-agreed interest rate.
Market specifics
Are bond investments flawed? For example, it is very difficult to invest in a small enterprise this way, even if it seems promising. Practice shows that such large papers are usually issued only by large organizations that constantly need investors to implement new projects.
In most cases, investments in bonds are planned for up to five years, rarely are programs lasting less than four years. Anyone who buys securities can sell them at any time, but is not required to do so. Perhaps he will get the most benefit when the maturity date is reached and the issuer pays him. You can regularly count on interest, and when dealing with securities, you can get an amount equal to the face value of the bond.
What mechanism do we work on?
The principle by which one can work with securities is determined by the bonds belonging to one of the well-known groups. The following classes are distinguished:
- by issuer;
- by type of income;
- by duration;
- level of security.
Issuers
There are investments in corporate bonds, when a person invests his money in those securities that were produced by some large corporation.
If the securities were issued by a company based in another country, then they speak of foreign bonds. Their distinguishing feature is a very high cost.
So that regions and regions can implement their projects, they also issue bonds, thereby attracting investors to their plan. In this case, they talk about municipal bonds.
Investments in government bonds are made when the person who owns the money wants to place the money in a state company. The key advantage of participating in such a program is the absence of a tax on all income from securities.
Type of profitability
According to this classification, all bonds are divided into two groups:
- Coupons, that is, those on which the investor can regularly receive payments in the amount of pre-agreed interest (those are either stable or change over time in accordance with the agreement concluded in advance).
- Discount. For them, the market value of the bond is lower than the nominal, but redemption is possible at the nominal value. A distinctive feature is the lack of interest in regular income.
Duration
It is customary to highlight:
- short-term, repayment of which occurs within a five-year period;
- medium-term, which can be repaid in ten years;
- long-term, designed for more than 10 years;
- not having a specific maturity.
Security
In the event that there is some kind of collateral - for example, property or securities of another type, then they speak of secured bonds. But if no collateral is provided, then such securities are classified as unsecured.
Guaranteed are those for which the investor can count on the payment promised by a third legal entity. Moreover, the issuer does not give any guarantees for obligations.
Finally, there are unsecured subordinated securities. If the company in which the money was invested goes bankrupt, the investor will be the last to claim damages.
Objectives and Methods
When an investor invests in securities, his main task is to choose a reliable financial destination. Bonds are even more reliable than investing in a bank, but only when it comes to a large and stable organization.The logic of work is such that the investor directly gives his money to the enterprise, which allows him to control the loan portfolio in real time without intermediaries.
If you decide to make your money work through bonds, then it all starts with the MICEX exchange. First you need to choose a broker, then open an individual account, after which you can proceed directly to transactions. In practice, the face value of most shares is about a thousand rubles, while the market value can vary up and down, but not significantly. Please note: usually on the exchange, the cost is not reflected directly in rubles, but is written as a percentage of the nominal price. For example, if you see that right now the interested security is traded at 98%, this means that in fact it will have to pay 980 rubles.
When buying, it is important to realize that you need to pay not only what the seller wants to get. Additionally, anyone who invests in bonds also pays coupon income, which accumulates on the security by the time the buyer is located.
What are the risks?
It is customary to say that investing in bonds is the most reliable thing in the financial market these days. Nevertheless, with certain risks this method of generating income is still associated. And first of all, you need to consider that there is some probability of default. What is this about? If the issuer is unable to cope with the obligations undertaken by investors, they speak of default. The likelihood of such a situation is higher when the yield relative to repayment is high. No matter how attractive the deal seems, think twice and analyze the situation on the market before you make it. Increased profitability signals a lower cost, which, in turn, is a beacon that the company is not doing well and may be “bluffing on the verge of a foul”.
Another danger that you need to be prepared for when going to work on the stock exchange is the likelihood of inflation. This term refers to a situation where inflation becomes greater than profitability.
There are so-called interest rate risks. As you know, on average in the market, the interest rate with a certain periodicity can change, which creates an unstable situation regarding the bond holder. To save yourself from this kind of danger, you should try to choose only long-term bonds or those that are characterized by constant interest rates.
We try to keep everything under control
The main task of the bondholder is to manage risks. This can be achieved if you have a loan portfolio, composed wisely from reliable securities. It is advisable to work with several issuers at the same time.
If the investor decides in favor of government bonds, he thereby prevents the loss of funds, because the state acts as a guarantor for these securities, and the funds simply cannot be lost. If we compare such programs with deposits, then their advantage is that responsibility will be on the whole amount as a whole, and not just on accrued interest.
In order to reduce the risk, it is recommended to work with municipal bonds and choose those corporate ones that were provided by large, reliable organizations, characterized by increased credit rating. This cannot guarantee a complete absence of risks, but significantly reduces them.
What is the result?
What can you count on when investing in bonds? To begin with, it should be clarified once again: profitability always goes hand in hand with risk. If you do not take risks, then you will receive almost nothing on such a security. On the contrary, the higher the risk, the more you can win - but also lose more.
You can calculate the indicators of current profitability as follows: determine what the annual income is, then divide the value by the current price and translate it into percent. If you have a discount bond, then you need to subtract the discount from the face value and divide the discount by the obtained value.
Current profitability is not the only important indicator when calculating how much you can earn on a security. It is necessary to consider the yield relative to repayment. Experts estimate this parameter as much more important. In fact, it can be described as a discount rate. This indicator gives an idea of the value of your investment portfolio and allows you to accurately describe what profit should be counted on.
The market is undergoing changes
The latest stock market news allows us to conclude that in recent years, more and more investors prefer to pay attention to Russian enterprises. Money spinning in this area really impresses the impression of the townsfolk, and every month there are more and more people who believe in the stability of the Russian economy. In 2017, as The Financial Times published data, it was possible to cross a previously inaccessible threshold.
Those who plan to invest in investments should be aware that the situation is strongly influenced by the level of oil prices in the world and international relations. The more reliable the contact between Russia and America, the more investor funds will be attracted, and vice versa. According to analysts, the whole of 2017, inflation will decline, while the securities market will intensify.
Federal loan bonds
As the experience of the past few years has shown, even working with the most reliable corporations can be risky. Against this background, federal loan bonds attracted great public interest. These securities are printed by the Ministry of Finance. It is customary to say that of all the other types that exist, they are the most reliable. At the same time, the percentage that is characteristic of OFZs is often used as the base for the situation without risk at all, and then interest for other securities is calculated from it further.
Government bonds are available nowadays to almost everyone who has free money. The main advantages of this method of investing funds:
- the opportunity to start with just a thousand rubles, since you can buy only one paper;
- liquidity, since the turnover that trades show per day often exceeds hundreds of millions;
- the possibility of choosing a suitable maturity (there are options lasting several months, there are those lasting decades).
By investing in OFZ, you can choose the optimal type of income from several:
- variable coupons;
- Permanent
- depreciation face value;
- indexable face value.
When a person investing funds makes a decision in favor of one or another option, on the basis of this he can already build an effective strategy that will allow him to achieve his goals. When choosing, be sure to consider the economic situation in the state.
Varieties
The following OFZs are:
- with constant income on coupons;
- with a fixed value, which may change from time to time, but information about this must be published in advance;
- with variable returns tied to a certain interest rate or inflation.
They also talk about two types of federal loan bonds:
- OFZ-AD, which is characterized by depreciation of face value, when repayment occurs in several stages, the schedule of which is published in advance. In this case, uneven repayment periods are possible, repayment by unequal parts is allowed.
- OFZ-IN. In this case, the denomination is indexable. There are two subtypes of securities of this group on the market today: OFZ 52001-IN, OFZ 51001. The first are extinguished in 2023, the second in 2021. Indexation is determined by consumer inflation.In the first case, the indicator is 2.5%, in the second it is slightly lower, 2.25%. For both types, payments are made once every six months.
Yield on any of the listed varieties is defined as the benefit received from the coupon and the benefit that the owner will receive when it is redeemed or sold. Yields recently ranged from 8 to 12 percent. This data is shown by the QUIK system. However, these are only average indicators, the situation at a particular moment in time may differ - you should be prepared for this.