Bonds or bonds are investment tools you can try in addition to stocks and mutual funds. This instrument can be issued by the government. (state bonds) or issued by a private company (Corporate bonds) Eits Currently, bonds also have Islam known as sukuk. Interesting, isn’t it?
However, before starting to invest in this instrument You should know the advantages and disadvantages of bonds first. Because each investment tool has its own advantages and disadvantages. Let’s understand!
The advantages of investing in bonds
1. Get regular income
If in stocks you are familiar with the terms of capital increase and dividends. The source of the bond profit is the profit from the sale of the securities. The difference between coupons and dividends is that coupons are regularly paid at a certain ratio. While the company pays dividends at any time and at any rate. according to the company’s policy to avoid uncertainty
Another advantage of bond income compared to stocks is that bond coupon yields are not taxable because they are recorded as expenses in corporate or government accounts.CNBC). Therefore, you have the potential to earn more net income.
One of the risks that investors face be it bonds or stocks is the risk of default on a pseudonym or bankruptcy company. in such a case Bondholders’ claims take precedence over stock investors. including preferred shareholders. In addition, the advantages of bonds are If the issuer does not pay the debt Investors and issuers can negotiate the conversion of bonds to stocks. convertible bond.
3. A safer investment
Investing in bonds is safer from the risk of default than stocks because:
- Have the right to file a claim with the above priority
- especially state bonds (Treasury bills) The risk of default is relatively low because type of debt It is usually issued by the federal government. So they will definitely get paid. unless the country in question is bankrupt
For corporate and corporate bonds issued by certain institutions or local governments This risk of default can be mitigated by choosing an instrument issued by a company with a good credit rating or AAA. You can find credit rating information on the websites of rating companies such as Fitch Ratings, Moody’s Investor Service, PT Indonesia Securities Rankings and more
Disadvantages of bond investing
1. Limited liquidity
The first disadvantage of investing in bonds is the limited level of liquidity. This means you can’t trade bonds as quickly as stocks. Because not enough investors are willing to trade bonds on the secondary market. There are three things (investor vs. investor), according to the authors:
- Bonds are not as popular as stocks.
- Issuers of bonds are not as many as stocks. If there are currently more than 500 issuers in the IDX, the number of bonds issued in a year is usually only ten.
- These bonds can now be purchased in various trading applications. Unfortunately, there are many applications that do not have this tool.
due to lack of liquidity These instruments tend to take longer to sell. This makes it unsuitable as an emergency money storage tool and a medium-term investment tool. (Especially until the expiration date)
2. The amount of bond coupon depends on the reference interest rate.
in every moment Bank Indonesia always publishes the benchmark interest rate. This change in the benchmark interest rate affects interest rates in the financial markets, such as interest rates and loan and bank rates. Also known as coupon bonds.
In general, if the reference interest rate of BI increases, the bond coupon will also increase. And vice versa. In fact, the increase in bond earnings is less frequent than the deposit rate. The goal is for investors to save money by buy bond This represents savings in the form of bonds.
For example, in 2045, BI sets the benchmark interest rate at 5%. To attract investors, Company A issues bonds with a 6% coupon. A year later, Company B issues bonds at 7%. 6%
3. The reference interest rate has an indirect effect on the price of bonds in the secondary market.
This can happen because investors will choose bonds with higher coupon rates. Let’s take a look at the examples of companies A and B that issued debt in 2045 and 2046 above.
logically Investors will definitely sell Company A bonds and exchange them for Company B bonds in 2046, even if the maturity of Note A is 3 years. This will automatically lower the price of Bond A on the secondary market as well.
4. Risk from exchange rate changes
Bond investors face the risk of changes in the Rupiah exchange rate against foreign currencies. Especially if investors invest in debt securities issued by governments or companies with domiciles abroad.
Is it profitable to invest in bonds?
Investing in bonds can be profitable if you can choose based on your desired risk and level of return, so choose the best bond. How to:
- Check the credit rating of the above rating companies.
- Don’t forget to read the prospectus. same as stock The issuance of these bonds requires a prospectus. when reading this document You’ll find important details about debt instruments such as who is the issuer, what the money is being invested for. What are the business opportunities? and so on.
- You should check the financial statements of the relevant issuers. Including the government. The reason is, you don’t want to lend money to people or institutions with poor money management skills, right? You can view the federal government’s financial statements through a link on the website. Ministry of Finance LKPP.
If you are unsure of choosing this instrument The solution is to buy a bond fund or a fixed income mutual fund (RDPT). The investment manager allocates most of your money to the selected bond.
Bonds are also a suitable instrument for medium-term investments. Since the life of this instrument is usually between 1 and 5 years, you can diversify your investment portfolio by choosing money market mutual funds (RDPU) for short term. Bonds for medium-term investments and long-term stocks
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