Before making an investment, investors generally do research on the instrument that they intend to use. That's why you have to understand the different types of Bonds and the related terms.
Without understanding and studying it, you might have difficulty making the right investment decisions. One of the terms that must be understood before investing in Bonds is coupon. But, before that, first understand what Bond investment is in the explanation of this article.
Definition and Types of Bonds
Some people think that Bonds are the same as stocks because both can be bought and sold. Bonds and stocks are two different things, because Bonds are debt instruments issued by a party for a certain period of time.
It contains an agreement between the Bond issuer and the investor. The issuer is obliged to pay yields through coupons periodically until the maturity date.
Bonds include investment securities with fixed income which can provide a relatively stable growth in investment value. There are several types of Bonds, below are the types of Bonds that you should know:
- Government Bonds
Just like its name, these Bonds are issued by the government. The risk level of Government Bonds is considered to be very low because this investment has been officially guaranteed by Law.
The government has issued several types of Bonds, such as Bonds with fixed coupons, Bonds with variable coupons, and Bonds with sharia principles or commonly called State Sukuk.
- Corporate Bonds
Apart from being issued by the government, Bonds are also issued by corporations, both private and state-owned companies (BUMN). Like Government Bonds, Corporate Bonds are divided into several types based on the coupon.
- Retail Bonds
The government also issues Retail Bonds which are openly sold to the general public. The Retail Bonds consist of ORI (Obligasi Negara Ritel) and Sukuk Ritel, both of which can be purchased at Bonds selling agents.
That is the explanation of Bond investment that must be understood before buying it. Apart from learning what it means, you also need to understand what a coupon is in Bond investment.
Understanding Coupons in Bond Investment
The term coupon is commonly heard when reading information and things about Bonds. So what is a coupon? Coupons are like loan interest that must be paid by the Bond issuer to investors.
Then why is it called coupon instead of Bond interest? The term coupon originated from when Bonds were still in the form of certificates made of paper. Inside the certificate there is a number attached called a coupon.
In order to get the yield, the Bond holders had to redeem the coupon on the agreed payment date. If they can't come to the office of the Bonds issuer, they will send the coupon through the post office to get the yield payment.
Until now, the term coupon is used by the public to refer to interest or yield on Bonds. In general, Bond coupons are divided into two types, namely:
- Fixed Coupon
This first type of coupon is most in demand by investors because it offers fixed interest on Bonds. The interest will be given periodically every 1, 3 or 6 months according to a predetermined amount.
The percentage value of fixed coupon Bonds has been determined by the issuer before entering the primary market. The advantage of investing in Bonds that offer fixed coupons is the yield value, which is not affected by economic and market conditions during a crisis.
- Variable Coupon
Variable coupon is not fixed, but works similarly to fixed coupon Bonds. Because both are given periodically every 1, 3 or 6 months.
The difference is that the interest rate on the coupon can change at any time following Bank Indonesia interest rates. So, when the economic condition is in a crisis, the profits will decrease.
If you are a conservative type of investor and want to gain stable profits, Bonds with a fixed coupon type can be the right choice.
When Do Investors Get Coupons?
Investors will receive a coupon (interest) every month, but it could be given every 3 months and 6 months or according to the agreement that was agreed at the beginning of the agreement. In addition to benefiting from coupons, you can also benefit from capital gains.
To get it, you need to buy and sell Bonds on the secondary market when the price of Bonds rises. Thus, you can gain the maximum return on investment.
However, not all Bond products can be traded on the secondary market, so make sure you check first.
Bond Investment Made Easier with DBS Treasures
Investment is part of the effort that can pave the path to the future you want. You can start investing easily and safely in Government Bonds through DBS Treasures priority banking.
You can plan an established financial by making the right investment. DBS Treasures will support you to achieve these aspirations according to your preferences, including by analyzing curated insights based on market data and risk profiles. So you can confidently make decisions according to the momentum.
The advantages of investing in Government Bonds that should be considered are the fixed coupon offer and the very low level of risk. Gain the maximum profit by investing in Government Bonds without the need to come to the bank or Bond selling agent.
To gain all these conveniences, make DBS Treasures your investment partner. Below are the advantages of investing in Government Bonds with DBS Treasures:
- Gain Regular Profits
You will gain profit through regular coupons that are given periodically until the Bond investment period ends.
- Capital Gain Potential
There are various types of Bonds that can be traded, so that they have the potential to generate profits from rising Bond prices.
- Competitive Coupons
You will gain competitive Bond interest above the average Fixed Deposit interest.
- No Additional Fees
Don't worry because you don't have to pay any fees. In Bond investment there is only a spread, namely the difference between the selling price and the buying price of the Bonds (bid and offer).
- 24/7 Transaction
You can buy and sell Bonds at any time for 24 hours straight through the digibank by DBS Application.
Want to know more about Government Bond products? You can find comprehensive information here. Plan your investment and secure the future you want with various types of Bonds now with DBS Treasures.
