One investment that is quite popular is bonds, although not as popular as deposits or stocks.
Bond investment is investment in loan funds. That is, investors provide loan funds to bond issuers (companies or governments) in the form of bonds (bonds). Then, fresh funds collected from the community will be used to develop the company’s business or finance part of the budget deficit in the State Budget (APBN).
Because of its nature as a loan fund, the issuer of bonds is obliged to pay interest (coupons) periodically in accordance with the predetermined time period and the loan principal at maturity.
Bonds are long-term debt issued by the government or company with a nominal value ( par value ) and a certain time period.
Here are some things you need to know about bonds:
The maturity period varies, from one year to more than five years. The shorter the maturity time, the smaller the effect on interest rates, but the longer the duration of maturity, the more sensitive the changes in interest rates.
The market value of bonds has a tendency to move in opposite directions with changes in interest rates. If interest rates fall, bond prices will increase, and vice versa.
Where can you get bonds?
To get this instrument is quite easy. You can buy it at a bond sales agent, such as in a bank or through a securities company. Before buying, consider the ranking of bonds in addition to the amount of the coupon. This is an indication of whether the bonds are safe or not, the ability of the issuer to pay for the coupons and basic funds.
Bonds that have been purchased can be sold to other parties on the secondary market according to market value or price before the bonds are due.
Type of Bond
Bonds have many types. Based on the type of publisher it is divided into government bonds, corporate bonds and foreign bonds. Government bonds consist of central government bonds ( treasury bonds ) and local government bonds ( municipal bonds ).
Government bonds are issued by the government and are fully guarded by the government as the issuer and are safe from default ( default ) because they are guaranteed by the state budget. However, the bonds are not entirely risk free because they have the potential to decline when interest rates rise, especially for long-term bonds.
Government bonds also have several types, namely Recap Bonds issued in the framework of the Banking Recapitalization Program, Government Bonds (SUN) to finance the state budget deficit, Indonesian Retail Bonds (ORI) to finance the APBN deficit but with a smaller nominal value so that they can be purchased retail and State Sharia Securities (SBSN). SBSN is often also called Islamic bonds or sukuk bonds to finance the state budget deficit based on sharia principles.
While corporate bonds are not like government bonds because they have a risk of default if the issuing company has a problem. But bond issuance companies have a risk of default, depending on the company’s characteristics and the provisions of each bond. The greater the risk of default, the higher the interest rate requested by investors.
However, corporate bonds usually provide higher yields than government bonds when the economy is stable. Conversely when the economy weakened and fears of default failed to rise, yields were given by corporate bonds under government bonds.
As for foreign bonds issued by the government or foreign companies that also have a risk of default. The risk will increase if bonds are in currencies outside the investor’s country.
With many types of bonds, this instrument also offers a number of advantages to investors, which can be an important choice as an investment instrument.
1. The benefits of bonds come from coupons. Coupon bonds are divided into fixed coupon (fixed coupon), coupon (floating coupon) and do not apply the coupon (zero coupon). If the duration of the bond’s maturity is getting longer then the benefits will be greater.
2. Apart from coupons, profits are derived from the difference in price of bonds that have been traded before maturity ( capital gains ). Capital gain can also be obtained if investors buy bonds at a discounted price and at maturity get a return worth the nominal price.
3. Bond coupons have a higher value than deposit interest.
4. Investment in government bonds is safe because of regulations that guarantee payment of coupons and principal bonds. The regulation was stated in Law Number 19 of 2008 concerning State Sharia Securities.
5. If the bond issuing company goes bankrupt or liquidated, the bond holder has the right of the first claim on the company’s assets.
6. More flexible if you want to be traded on the secondary market.
7. Bonds can be used as collateral.
Shortage of Bonds
Besides having advantages, every investment also has shortcomings, including bonds. Some of these disadvantages, namely:
1. Bond issuers have the risk of defaulting on bond coupons or returning all bonds. But this does not apply to government bonds because it is protected by law.
2. Bonds are very sensitive to fluctuations in interest rates, economic climate and political conditions.
3. Selling bonds that have not yet matured on the secondary market will have a negative impact on bondholders because the selling price is below the purchase price.
4. Long-term bonds cannot be disbursed before maturity if needed at any time or want to make another investment.
How, are you interested in investing in bonds?