Government Bonds, a type of safe and potentially profitable investments that you can consider. This type of investment is free from payment default because the issuer is directly from the government and there are laws governing the Bonds transactions.
In the world of Bonds, there are many important terms that must be understood by investors. Introduction to these terms will help you to prevent misunderstandings and minimize losses when buying this investment instrument.
Glossary of Important Terms in Bonds
Bonds are investments in the form of a debt statement. Several common terms related to Bond investment are coupons, maturity, assets, and so on. The following is an explanation of several important Bond terms that you should understand.
- Nominal Value (Par Value)
The nominal value or commonly called par is the principal result that is obtained by the Bond holders when the time is due. For example, the government issues Bonds on the market worth IDR 500 billion.
Then, the requirement for buying the Bonds is a minimum of IDR 5 billion. When sold, the price in percent reaches 100% and the value of IDR 5 billion is what is referred to as the par value.
If the bonds are traded at a higher value, namely 110%, 112%, or 117%, then the par value of the investment will remain the same (100%).
- Coupons or Interest Rates
Coupons are returns or profits that are included in the nominal value, which must be paid by the issuer to the Bond holders during a certain period. The most commonly known types of coupons in Bonds are fixed coupons and floating coupons.
The difference between the two types of coupons can be seen from their names. As the term implies, a fixed coupon has a fixed interest rate based on the initial agreement. On the other hand, a floating coupon varies in value depending on the BI interest rate.
- Maturity Time
Maturity time is the refund date based on the nominal value invested in the Bond issuer. This maturity is not limited to one time. There are 1 year, 5 years, 10 years, and more.
Usually, coupons are higher as the length of time to maturity are longer. This is due to differences in currency values that can change and the accompanying uncertainties in the future.
This change can be an advantage for Bond holders by obtaining higher yields. Even so, Bonds with maturities within 1 year are easier to predict.
- Issuer
The party that has the authority to issue Bonds or debt statements is called the issuer. It is the party who owes the debt if the investor holds the Bonds issued.
The issuer also determines the types of Bonds. For example, Government Bonds are Bonds issued by the state. Then, there are Corporate Bonds whose issuers come from companies.
The issuer of these Bonds is the main consideration for an investor in buying debt securities. If Bonds are issued from unclear sources or companies, of course there is a possibility of default.
However, these concerns will not occur if you buy Government Bonds that are regulated by the laws. If you buy this Bond, you will regain your initial capital and there is a high opportunity to profit from the coupons.
- Assets Claim
During the buying and selling of Bonds, there is a possibility that the issuer of the Bonds will go bankrupt and fail to pay. So, the only solution is to sell the assets and give the proceeds to the Bond holders as a form of payment.
- Trustee
This is the party that represents the Bond holders. The purpose of having a trustee is to protect Bond holders, aka investors, from adverse events. In addition, the trustee also plays an important role in providing updated information regarding the conditions and developments of the issuer concerned.
Increase Bond Profits, Understand How It Works
After understanding some important terms about bonds, next you also need to understand how these investments work. The way investment works that is commonly known is by trading assets, but specifically for this Bond there are several kinds of mechanisms as follows.
- Auction
Bonds with an auction system will provide opportunities for financial and banking institutions to submit bids. The offer can be in the form of Bonds with a predetermined yield.
- Underwriting
Underwriting is a mechanism when all types of Bonds issued have formed a syndication and intended to be resold to general investors.
- Special Publishing
The way Bonds work is the opposite of underwriting. Special issuance makes the Bonds an asset that is private placement in nature, so that only certain parties can buy it.
So, how to buy these Bonds? Generally, Bond assets will be traded Over The Counter (OTC). The mechanism is through exchanges that provide a special system as a form of facility in Bond trading.
The Bond sales system is known as FITS (Fixed Income Trading System) which is owned by the Indonesia Stock Exchange. Not only that, there are also other systems such as CTP-PLTE which are electronic in nature. The system is used as a trading facility and reporting of each debt securities transaction.
In terms of performance, the buying and selling of these Bonds is at least influenced by three main factors, namely interest rate, level of risk, and maturity. Regarding the interest rate, this is closely related to the interest rate set by Bank Indonesia. Therefore, Bond investment value also depends on the amount of interest rates.
However, you don't need to worry about how it works or the steps to purchase the investment. If you are interested in buying Government Bonds, there are many investment platforms that provide buying and selling services. Choose the type of platform that has been proven safe and offers many benefits.
Investing in Government Bonds with DBS Treasures Made Easy
As previously mentioned, Government Bonds are the safest investment. However, there are many other benefits that lead to high demand.
Some of the benefits of investing in Government Bonds include periodic coupons for asset holders, capital gain opportunities, and relatively high profits. If interested, priority banking DBS Treasures is the right choice to invest in these Bonds because it offers many benefits as follows.
- Bond holders have the opportunity to gain regular coupons
- There is potential for capital gains
- Competitive coupons available
- Free of additional fees
- Practical 24-hour investing through the digibank by DBS Application
That’s all the information regarding important terms in Bond investment. If you are really interested in Government Bonds, there are many types to buy. Starting from FR & PBS series Bonds, SR & ORI series Bonds, INDON & INDOIS series Bonds, and others.
DBS Treasures can support you with curated insights based on your market data and profile, so you can invest quickly and easily with confidence. In addition, DBS Treasures has been verified by the Financial Services Authority (OJK) so that its security and legality are guaranteed. Find other interesting things about this investment by accessing the detailed info here.
