Many are familiar with the situation when a certain amount of funds is required and it is borrowed. Everyone at least once in his life came across this. It should be borne in mind that not only people may need money, but also firms, organizations, and the state. Organizations are faced with such a problem when they need much more money than a banking institution can offer.
In such cases, the best option is to attract investors. Investors are individuals or legal entities that invest money in an organization, expecting from it a no lesser amount of profit. For these purposes, bonds are issued. A bond is a security that is presented in the form of a loan. Within a certain time period, the organization undertakes to return the borrowed funds to the investor. All nuances are agreed between both parties. And only after informed consent is the so-called contract concluded. Without signatures, the paper will have no effect.
The value of bonds can be any that a future investor can invest, or the company appoints it on its own.
There are two types of securities:
- bonds - debt funds, the investor becomes a creditor to the organization;
- stocks - capital, acquiring which the investor receives a package of documents of the company and is its co-owner.
The yield of bonds depends on the economic situation in the country and on the ability of the owner of the organization to manage the funds received.
Payout options
The interest paid to the investor is agreed in advance, as well as the payment schedule. Debt is paid once a year, once every 6 months or every 3 months.
There are several payment methods:
- Fixed percentage. The simplest and most common option.
- Step rates. Each time the cost increases.
- Floating rate. Bond income is constantly changing, depending on the exchange rate.
- Nominal rate indexing.
- Sale at a discount.
- Based on winnings. The bonds are not given to everyone, but only based on the results of the circulations.
Types of income
The yield of bonds is characterized by a number of factors that completely depend on the conditions offered by the business owner:
- Profit from coupons. Each coupon contains the interest rate that will be paid to the investor by the business owner.
- Current income. All bonds have a fixed rate. At the same time, changes in bond prices are not taken into account, regardless of the storage period. Prices vary until the time of purchase. At the time when the investor acquires securities, the size of the value becomes fixed. The current bond yield figures do not take into account the changes between the price at which the securities were purchased and the redemption value.
- Amount of profit depending on repayment. It represents a certain percentage of the rate, which is able to establish equality between market value and regular payments.
- Full income bonds. In this case, all possible sources of profit are taken into account. In many specialized economic publications, this rate is also called the room rate. If you correctly determine the rate of the premises, then you can understand whether it will be effective to acquire securities.
Government loans
You can be an investor not only for commercial organizations. The state also has the right to issue securities. The funds raised allow us to implement large-scale projects at the state level or to replenish the budget. In simple terms, government bonds represent the amount of money borrowed from ordinary citizens. The government promises to return the investments in full, plus interest.
What are government loans?
First of all, this is a type of security. They are no different from other options of bonds, they also have a nominal actual value, which allows investors to profit. The amount of such income is determined at the level of the Ministry of Finance.
Unlike commercial organizations, government bonds are more reliable. Risks are present in both options. As an example, we can use the situation of the times of the USSR, when there was a depreciation of funds.
Government loan bonds are guaranteed to be profitable. Such investments will also be repaid within a few years. The term can vary from 1 year to 30 years. Waiting for profits is optional. Securities can be sold to anyone.
Where to buy bonds?
There are two ways to invest your own funds:
- Contact a broker. Transactions with the purchase and sale are carried out in the same way as with other securities.
- Open a personal investment account. In such cases, the income depends on the amount of the deposit.
What are the ways to make a profit?
It would be unprofitable for those who want to get a good percentage of the invested funds to buy Russian bonds from the state. The interest rate is the same as for a regular deposit in a banking institution - up to 11% per year.
Despite this, there is an opportunity to make a profit. The percentage is fixed annually, you can make a profit every 6 months.
Russian bonds can be bought and sold freely, like other types of securities. Prices vary over time, and you can make money on it.
Federal loans
Federal loan bonds for individuals are a type of bond issued in ruble terms exclusively by the Ministry of Finance. Securities are issued in the form of coupons for which payment with interest is provided. Such loans can be classified as government bonds.
What are the bonds?
Depending on the profit you can distinguish:
- Interest bonds - in the form of coupons. Interest is accrued on the amount that has been spent.
- Discount bonds - the cost of payments is close to the nominal value of securities.
Types of bonds depending on who issues them:
- State - The Ministry of Finance is in charge of the issue.
- Municipality - the administration of individual cities and regions is engaged in the issue.
- Corporations - issue organizations, firms, joint-stock companies.
Federal loan bonds for individuals - bonds from the state with a high interest rate, which allows investors to get good profit.
What are the features?
In comparison with ordinary exchange bonds, there are features:
- Sale is allowed only to adults who have the citizenship of the Russian Federation.
- You can not buy and sell in the financial markets. Also transfer to third parties, mortgage or pay.
- You can only cash out in the bank where the bonds were purchased.
- You can not invest in other banks.
- Bonds cannot be given, but can be inherited.
Quotation
Bond quotes are the set value for the purchase of securities available for sale on stock exchanges. At the same time, everything complies with the established legislation.
All operations are carried out by a special commission. All information is mandatory distributed in specialized print media.
The official bond quotation level is set for a specific period. Such rates are used for settlement outside the exchange. The size of the quote depends on the economic indicators of the currency, on the position of the organization in the market of goods and services.
Size of the value of securities
The price of bonds is the value of the cash flow that is currently expected. Such a flow includes two components: coupon payments and the payable value of bonds.
You can determine the cost, for this a number of conditions are provided:
- The cash flow is presented in periods. This allows you to see changes in coupon yield when issuing bonds.
- The amount of income is determined depending on the risks that may occur in the stock market.
- Payments on bonds are made after a certain period of time in full. This period is set when purchasing securities.
When selling bonds have a value that differs from the nominal price. The price may be affected by:
- interest rate;
- time that the bond is in circulation;
- organization rating;
- repayment time.
In the event that the bond owner sells securities, all rights are transferred to the new owner by order. Including the ability to dispose of the funds that have accumulated at the time the bonds were held by the previous owner.
International bonds
All international bonds can be divided into foreign bonds and Eurobonds.
Foreign countries sell all countries that attract borrowed funds in local currency. For example, large corporations in France sell bonds in the UK. They are issued in pounds sterling. The main buyers are local investors. A bank syndicate acts as a guarantor.
The main differences:
- bonds are issued by French corporations;
- used currency at sale - pound sterling;
- The guarantor of foreign bonds is a banking syndicate located in Britain.
Eurobonds are distributed through a multinational banking syndicate. Securities can be issued simultaneously in several currencies. This minimizes the risks associated with currency exchange transactions. The income earned is not taxed. This type of investment is relevant for those who pay high taxes on income.
There are a number of properties that can be attributed to valuable:
- the right to choose a currency;
- high level of elasticity;
- there is capital mobility at the international level;
- the opportunity to get high profits;
- There is a close relationship with foreign securities.
Par Income
Income from invested funds is calculated as the difference between the nominal yield of the bond and the rate of inflation. Before considering all possible risks, it is worth choosing a period of time and deciding whether we will talk about real or nominal income.
Par income is determined in advance. The investor only has to wait for the maturity of the bonds. If inflation is not taken into account, then such investments have no risks.
When forming a portfolio, regardless of its type, it is necessary to analyze the possible income and risks for all financial indicators. In the Russian Federation, nominal incomes are fully official. They are used to calculate income in the state securities market. They are also generally accepted in bill markets.
Profit calculation
The bond market yield is the profit that an investor receives from investing in securities. Calculating revenue is very simple. To do this, you need to divide the number of coupons purchased by value. In the event that the bonds were purchased at par, the income level is equal to the coupon rate. Income may vary depending on variations in the exchange rate.
Specialists formulate the ratio of bonds to income as follows: at the time of rising prices for securities, the level of income falls and vice versa.
Formulas for calculating income
For each type of income, you can apply the appropriate formula for calculating the yield of bonds.
- Income from coupons. Suppose, when buying a bond, it was indicated that the amount of income would be 11.75 percent per year. The cost of the bond is 1 thousand rubles. You can purchase two of these coupons for a year. This means that every 6 months you can get 58 rubles 75 kopecks. The cost for the year is 117 rubles 50 kopecks.
- Current income. In this case, the formula i (m) = (N * k) / P = g / P (k) * 100 is applied.
Consider the notation:
- k - coupon rate per year;
- N is the face value;
- P is the acquisition cost;
- P (k) - the established rate from the date of purchase of bonds.
Suppose that the amount of income is 11.75 percent per year, and the rate at the time of acquisition is 95 rubles, then the current income will be 12 rubles 37 kopecks.
Thus, when calculating the income of a securities portfolio, a formula is used that is completely analogous to the formula that is used for classical calculation.
Coupon Rate
A bond coupon rate is interest income annually. Suppose, if the interest rate is 12 annually, and the value of the security is 1 thousand rubles, then for a calendar year there is an opportunity to receive 120 rubles.
There are several options for coupons:
- Permanently fixed. The percentage is known to the investor before making a purchase. It does not change from the moment the coupon is purchased, until the day when all payments are made.
- Variable fixed. The amount of income known to the investor is only partially. The rate is known only until a certain deadline. After this period, a new rate is determined, which can both decrease and increase.
- Floating. The interest rate is constantly changing. It depends on binding to some indicator. The rate may be affected by: exchange rate, inflation, set rates by the Central Bank.
Any person who holds securities must pay a tax of 13 percent annually.
OFZ Revenues
The rates on the yield of federal loan bonds are of two types: fixed and variable. Fixed rates are also called fixed. They are set for each coupon for a specific period. The size of the bet depends on the time of issue of the coupons. Variable rates are completely dependent on the official data received, which are dependent on inflation. Also, the interest rate depends on the Central Bank of the Russian Federation.
Income is formed from two indicators:
- the amount of income that the investor will receive from the purchased coupon;
- profit when buying a coupon that has a value below par.
In those cases, if the investor purchases a coupon that has a value higher than the face value, there is the possibility of suffering significant losses.
When applying for federal loans, profit on the coupon is accumulated. By the time of maturity of payments there is an increase in the value of the coupon. When resale occurs, the owner takes these points into account.
It is imperative to take into account the taxation system, since each type of income is subject to mandatory taxation. If the coupon is always owned by one person, the tax amount will be 15 percent of the profit. When selling a coupon, you need to pay about 35 percent for the difference in value.
To get a good profit, these points must be taken into account. All activities in this area are regulated at the legislative level.
Current income
The current bond yield is the amount of payment for coupons annually. Such indicators do not take into account the income of the investor, which depends on the variation in price at the time of repayment of the bonds or during the sale.
To assess the effectiveness of the result, you can use the calculation, which includes the size of the premium to the cost of the purchased coupon.
To reduce possible risks when investing funds in securities, it is best to choose organizations that provide a short period until the loan is fully repaid. Fluctuations in value can be observed only during the period when the economic crisis in the country sets in.
Despite this, the cost rate returns very quickly depending on the improvement of the economic situation or when the maturity date of the investment deposit approaches.
Risks can also be minimized if you contact large companies and organizations that have proven themselves to be the best among investors. But it must be borne in mind that income will be significantly lower than that of small enterprises.
Profitability Definition
The yield of bonds can be determined by the following formula: r = C / P.
Consider the designation of indicators:
- r is the amount of current income;
- C - purchased coupon;
- P is the coupon price at the moment.
Suppose a coupon was purchased at a price of 20 thousand rubles, at the moment the cost of this coupon has increased to 80 thousand rubles. Consequently, the amount of income is defined as 25 percent.
Before you purchase bonds, you need to understand in detail the available types of securities. It will be useful to consider income generation options. All this will allow you to evaluate your capabilities and understand how much profit you can get when investing. In such matters, it is better not to rush and check everything carefully.