Know the Types of Bonds and Special Characters of Bonds
15 Jul 2022

Know the Types of Bonds and Special Characters of Bonds

Many investors experience difficulty in choosing the right Bonds. Are you one of them? If so, the cause could come from a lack of knowledge about the types of Bonds available. This makes it difficult for you to find which Bonds match your risk profile.

It is common knowledge that investors must pay attention to their risk profile before buying, selling or transferring assets, including Bonds. To make it easier for you to choose, you can observe the following types and characters of Bonds.

 

Character and Type of Bonds Based on Various Factors

Bonds are debt securities issued by the government or corporations and owned by investors who have bought them. Owning bonds means that the issuer has an obligation to pay yields or coupons periodically and return the principal amount when it matures.

Unlike other securities, Bonds have several characteristics. First, the value will be determined from the company's performance, cash flow, and the size of the business needs.

The second is that the varied term of the Bonds, ranging from 1 to 10 years. This character makes Bonds a short to medium term investment. The third is the regular coupon payment schedule, ranging from every month, three months, per semester, and others.

 

Types of Bonds by Bond Issuer

Types of bonds can be distinguished based on several categories, the first is the issuer. Here are the types.

1.     Corporate Bonds

It is called corporate because the issuer is a State-Owned Enterprise (BUMN) but it can also be a private party. For example Pertamina Bonds, BRI, PLN, Indosat, and so on. The types consist of fixed coupon bonds, variable coupons, and bonds that refer to sharia principles.

2.     Government Bonds

The second type of Bonds is issued directly by the government, for example Obligasi Negara Ritel (ORI). Indonesia issued these bonds for the first time in 2006 in August. In addition to ORI, there are also Sukuk Ritel  (SukRi), Sukuk Tabungan (ST) and many more.

 

Types of Bonds by Coupon

Apart from the issuer, the types of investment bonds are also distinguished based on the coupon. This type is divided into three, namely:

1.     Zero Coupon Bonds

What does no coupon mean, how do investors make a profit? The purpose of this Bond is that the coupons are given not periodically. These Couponless Bonds are considered interest-free notes to maturity. Investors can purchase the bonds at a discount and then receive full payment at maturity. The advantage of this bond can be seen from the difference between the purchase price and the selling price of the Bond. So pay attention when choosing Bonds with this type of coupon, especially if you want to gain regular returns. Unless you plan to keep your investment funds and take the profits along with the principal.

2.     Fixed Coupon Bonds

This is the type of coupon that is most common, even most investors only recognize this coupon. Coupons will be issued periodically and the value has been determined since the offering period of the Bonds issued.

If you have plans in the near future, these coupons that are paid regularly with a known nominal value can be very helpful. Just choose which Bonds have the coupon value that suit your investment objectives.

3.     Variable Coupon Bonds

This type of bond works the same way as fixed coupon bonds, namely interest that is given periodically. The difference is that fixed coupon bonds offers a set nominal interest since beginning.

This interest amount for variable coupon bond will change at any time and will be approved at a certain time. The change itself is influenced by banking interest rate reference. This bond is a bit tricky so it requires further monitoring of the performance of the product.

Types of Bonds Based on Nominal

You now know the types of bonds based on the issuer and coupon, next are the different types based on the nominal. The nominal meaning here will determine how much capital you should prepare to own a bond. What are the types?

1.     Conventional Bond

You can get a conventional Bond slot with a nominal value of around IDR 1 billion. If you already have more than this nominal, you can immediately buy several slots.

2.     Retail Bond

Compared to conventional bonds, you only need a capital starting from IDR 1 million  to have one slot. Most of the issuers of these bonds are governments and some are corporations.

 

Types of Bonds Based on Maturity

The final differentiator is the time of maturity. This type is also important to note because it will relate directly to your investment objectives.

1.     Long-Term Bonds

Also called futures Bonds because the maturity date is quite long and is only set once. The period can be more than one year depending on the regulation of the publisher.

2.     Short-Term Bonds

Another term is serial Bonds which have a shorter maturity date of one year but consist of a series of dates. So you can still invest in the long term, especially if it includes Bonds without coupons.

Ready to Invest in Bonds? Invest through DBS Treasures

Based on the definition of Bonds, characteristics, and types above, you must already have an idea which bonds are suitable for your investment goals and risk profile. You can access comprehensive Bond products at DBS Treasures priority banking.

In addition to providing a choice of Government Bonds, DBS Treasures also provides other benefits to its Clients. Below are the advantages you can gain:

1.    Government-Issued Bonds

Bonds issued by the government bring a sense of security and comfort because they are guaranteed by Law. DBS Treasures makes it easy to invest in government-issued Bonds with comprehensive selection, both from the primary market and the secondary market.

2.    Comprehensive Bonds Selection

Every investor has different preferences, including you. DBS Treasures understands this preference very well so that the product selection provided is comprehensive. Find various maturity periods and regular coupon values.

Not only that, you can also choose the currency you prefer, namely IDR, USD and EUR. Which one suits your preferences?

3.    Potential Profits from Reselling Bonds

You can also gain profits from buying and selling bonds, known as capital gains. The reason is that you can sell bonds at DBS Treasures at any time, whether you are in need of emergency funds or when you see an increase in the price of bonds.

The potential for obtaining capital gains is even higher because of the flexibility to trade.

4.    Competitive Coupon Value

It is undeniable that coupons or yields are often used as a reference for investors to buy Bonds. While investing through DBS Treasures, you will find product offers with competitive coupons. The value is also above the average Fixed Deposit interest rate.

5.    More Profit Without Additional Cost

During transactions through DBS Treasures you will only get a spread fee, which is the difference between the buying and selling prices or the bid offer. This certainly allows you to gain more since the profits will be reduced by taxes later.

6.    Gain Regular Coupons

Bonds in DBS Treasures are not couponless. So you will gain regular coupons, not when it matures. The payment itself is made by the bond issuer in accordance with the set conditions and the investment period.

7.    Full Access 24 Hours

There is not a day when you need to have trouble accessing Bond investments with DBS Treasures. Access to investment is made easier online, namely through the digibank by DBS Application.

Now that you have complete knowledge of the types of Bonds, the characters of Bonds, and where you should invest can minimize risk. You can avoid Bonds with default risk. You can also avoid choosing Bonds with unsuitable maturity period.

Continuing to broaden your horizons around Bonds will help you determine the right strategy and avoid impulsive moves.

All the information has been provided by DBS Treasures. You just need to join as a Client and start to invest confidently to enjoy all the benefits.

PT Bank DBS Indonesia is registered and supervised by Financial Services Authority (OJK), and also a participant of Indonesia Deposit Insurance Corporation (LPS) guarantee program