How to invest in bonds? Automatic translate

Investing in bonds is a great way to regularly receive stable passive income and protect your savings from inflation. Bonds are more profitable than bank deposits due to the fact that the income on bonds is higher. In addition, they can be sold at any time without waiting for a certain date. Compared to stocks, bonds are safer because the investor knows that he will get his invested money back when the bond expires or even earlier. To do this, you just need to sell the bond.

When purchasing a bond, the investor lends his money to an organization or state for a specific period of time, and the organization undertakes to repay this debt after a specified period. The investor regularly receives coupon income - a certain percentage of the bond’s value (on average 5%). This is a significant difference between bonds and shares: bondholders always know that they will receive income, while the decision to pay income on shares (dividends) is made at a meeting of shareholders and depends on the financial situation.

So how to invest in bonds ? In order to buy bonds, you need to enter into an agreement with a broker and open a brokerage account. Before you do this, you need to make sure that the broker is reliable by requesting a license from him.

Characteristics of bonds

Par is the price at which the bond will be redeemed. Most often, the denomination is 1 thousand rubles.

Market price is the price at which a bond is currently being sold on the stock exchange. As a rule, the market price is 95-105% of the face value. Regardless of what price a bond was purchased at, it will always pay off at par if it is held until the maturity date.

Maturity Date – The date when the bond expires and the investor gets back the money they invested.

Coupon is a profit paid regularly on a bond (usually twice a year). The profit margin is the annual yield of the bond.

Types of Bonds

State (OFZ) and municipal. The yield on them is not very high (5-6%), but these types of bonds are the most reliable. When purchasing municipal bonds issued by regions of the Russian Federation, it is important to study the credit rating of the regions and choose bonds of donor regions (Moscow, Leningrad, Sverdlovsk, Samara, Tyumen regions, Khanty-Mansi Autonomous Okrug, Yamal-Nenets Autonomous Okrug, Tatarstan and others). Coupons on these bonds are tax-deductible.

Corporate bonds or bonds of large organizations, often with government participation. For example, you can purchase bonds of Russian Railways, Sberbank, VTB, Rosneft, Gazprom and other state corporations. The yield of such bonds is higher (6-9%) than OFZ, but their reliability is slightly less.

Bonds of medium-sized businesses. The yield on such bonds is high (from 9-10%), but this type of bond is not reliable.

The greatest risk when investing in bonds is the default of the organization whose bond the investor purchased. Therefore, before buying bonds, you need to make sure of their reliability, assess the financial condition and whether the company has debts. It is for this reason that OFZs and bonds of large corporations are considered the most reliable bonds: the likelihood of government default and bankruptcy of large companies is extremely low.

Based on their lifespan, bonds are divided into short-term (up to 3 years), medium-term (3-5 years) and long-term (more than 5 years). During a turbulent market situation, during financial crises, or when the Central Bank cuts rates, it is recommended to buy short-term bonds.

To purchase one bond, it is enough to have 1 thousand rubles (this is the price at which most bonds are sold), an open brokerage account and an application for trading on the stock exchange, which is provided by the broker.

Bonds can be an excellent alternative to bank deposits if you want to receive higher income and preserve your savings.