There are a lot of investment financial instruments with which you can get income from capital: mutual funds (mutual investment funds), IIAs (individual investment accounts), PAMM accounts in which investors trust funds to Forex traders, stocks, futures contracts on exchanges, etc. In this article we will talk more about what bonds are. What is their difference from other securities and how can you invest in them?
What are bonds
Bonds and bonds are one and the same. The first name is more modern, as it came to us from the West quite recently. Often there is the meaning of "Eurobonds", that is, securities that are quoted on an international stock exchange. The term “bonds” is usually applied to domestic sales, but this is not a postulate. For example, US government securities are called US government bonds. Therefore, these are equivalent concepts.
Bonds (bonds) is a security, which is a confirmation of the issuer's debt obligations to the investor. Buying them through stock brokers, people actually lend to companies, acting as financial organizations and banks. Of course, for this, issuers provide various bonuses, depending on the declared conditions. To better understand what bonds are, let's move on to payment methods for them.
Types of Bonds for Settlement with Investors
Depending on how the investor will receive income, bonds are divided into three main types:
- Discounted bonds assume that the entire main bonus will be received by the purchasers upon presentation for payment. The nominal value of securities is higher than real. To better understand this, imagine that one person bought 100 rubles for 115, but they will give them to him only after the agreed time. The exchange monitors the integrity of the entire operation.
- Bonds with a coupon imply fixed interest payments for a certain period of time to investors, which are called coupons. The nominal value of securities is usually the same as when selling. All the main income is made up of coupons. Suppose that one person bought 100 rubles for the same amount, but they will give it to him only after a year. The income consists in monthly payments of 5 rubles.
- Bonds with a mini coupon suggest a mixed system of the above methods of yield: a small percentage and a small difference in face value.
Some incorrectly think of bonds as stocks. This is actually not the case.
Difference from stocks
Shares - securities that give their owners the right to profit from the enterprise. Such income is called dividends. The more successful the company, the higher the amount. In addition, the purchase of shares suggests that the investor becomes a co-owner of the enterprise.
Bonds (bonds) are securities that involve a fixed guaranteed income. It does not matter how much the company has earned or lost during the time they were with the investor. In any case, the company must pay upon presentation of the bonds.
It is incorrect to think about bonds that this is the right to a certain share in the enterprise. Even if an investor buys securities much more than the entire authorized capital of the company, he will not become a co-owner.
Benefits
We hope that it is now clear what bonds (bonds) are. Now we will analyze their main advantages:
- Assume guaranteed income to investors. In fact, these are debt obligations that the issuing company assumes, therefore, the securities are not affected by its current financial position.
- The yield is higher than a regular bank deposit. Of course, in percentage terms it is small - in the region of 10-12%, depending on the company. On bonds of the largest corporations and federal loan bonds, the yield is even lower, but their level of trust is such that it is possible to draw an equal sign between them and bank deposits.
- Bonds can be sold on the stock market without losing the invested funds and income on them, unlike bank deposits, which significantly cut the percentage of income for early withdrawals.
Minuses
We can’t say that securities in the form of bonds are an ideal tool for investing. Investors, as a rule, invest in them in order to save money, and not to increase it. In crises and periods of instability, competent financiers do not invest in stocks of companies whose stock quotes can "drain" all capital. They prefer to invest in these same companies, but in bonds, since income from them will be guaranteed, unless, of course, they go bankrupt at all. By cons of bonds include:
- Lower percentage compared to other investment instruments. But do not forget that the risks of losing them are also great.
- The lack of opportunities for investors to become a co-founder of the company and make a profit.
Reasons for Release
We explained what are bonds (bonds). These are securities traded on exchanges. They represent debt instruments. Companies resort to the practice of issuing for the following reasons:
- Urgent improvement of the current state of affairs: to pay on loans, liabilities, in order to avoid fines, penalties, etc.
- To buy the necessary batch of goods at a bargain price.
- The company has a lack of funds for development, and bank loans will be more unprofitable than bonds
- Seasonal decline factors, etc.
If bonds are issued by the state, this does not mean that it is bankrupt, there is no need to shout "guard, everything is gone." As a rule, all governments resort to the source of loans on the stock exchange. There may be several reasons:
- State revenues arrive at a certain time: tax revenues, interstate tranches, license renewals, and current expenses occur continuously.
- Amounts are needed for serious investment projects, which will bring much more profit than expenses on bonds.
- Fulfillment of other financial obligations, etc.