What is a bond?What types of bonds are there today, how to distinguish between types of bonds and what are the risks when buying bonds? Let's explore with HVA in this article.
What are bonds? What are the benefits and risks of bonds?
Bonds A bond is a financial instrument that investors buy to lend money to an organization (such as a government, bank, or business). When you buy a bond, you are making an investment in the organization that issues the bond. In return, that organization promises to pay you periodic interest and repay the principal amount when the bond matures.
Bonds are also a tool, stock investment strategy Bonds are popular and considered less risky than stocks. The value of bonds can fluctuate in the stock market, but the interest rate and principal repayment amount usually remain the same because they provide a steady income stream and a guaranteed return of principal when the bond matures. This means that if you hold the bond to maturity, you will receive the full principal amount, along with periodic interest payments.
Investing in bonds requires considering the following three main factors:
- One is the bond face value.: This is the principal amount that the investor will receive back when the bond matures. The par value is usually the amount the bond was issued for and is also the amount that will be returned to the investor when the bond matures.
- Second is bond interest rate: This is the interest rate that the bond issuer pays to the investor. This interest rate is calculated on the face value of the bond and is usually paid periodically (annually or semi-annually).
- Third is the bond maturity date.: This is the point at which the bond will expire and the bond issuer will repay the principal amount to the investor. Maturity can range from a few months to several decades.
Where to buy bonds?
When deciding to invest in bonds, choosing the right place to buy and performing the correct transaction steps are the first important factors that determine the success of investing in this field. If you have any questions, please contact where to buy bonds To ensure safety and profitability, HVA recommends that you choose bond purchasing channels that suit your own needs and investment goals, only then can you hope to achieve optimal profitability.
Here are three popular channels and places to buy bonds:
- Bank: Many banks offer bond trading services to their customers. You can do this through their branches or by using their online banking services.
- Securities company: This is where corporate and government bonds are offered. You can open a securities account with these companies to access bond products and make transactions.
- Online trading platform: Online trading platforms are increasingly popular and allow you to buy bonds from a variety of issuers. These platforms often offer convenient performance tracking and investment management tools.
What types of bonds are there?
Of course, anyone who wants to invest in bonds will have the same question: where to buy bonds or what bonds are currently on the market? Types of bonds Below we will list the 3 most popular types of bonds today, the concepts and characteristics of each type so that investors can easily understand and choose the type of bond to serve their own investment purposes.
1. Government bonds:
What are government bonds?
This is a type of bond issued by the government to raise capital for public projects or to finance national budget activities. Simply put, government bonds are a debt instrument of the government to attract capital from investors.
According to financial experts, government bonds are a suitable investment option for those who seek safety and stable income. However, the interest rates of government bonds are often low, so they may not be attractive enough for investors who seek high returns for investment purposes.
Characteristics of government bonds and benefits of investing in them:
- High reliability: Government bonds are considered one of the safest investment instruments because they are guaranteed by the government. Government default rates are very low, especially in countries with stable economies.
- Fixed interest rate: Government bonds typically have a fixed interest rate, meaning that investors receive a fixed interest rate for the entire term of the bond. This interest rate is typically lower than that of corporate bonds due to the lower level of risk.
- Flexible maturity: Government bonds can have maturities ranging from short-term (less than 1 year) to long-term (over 10 years). Investors can choose bonds with maturities that suit their investment goals.
- Stable and safe: Government bonds offer stability and protection for investment capital. This makes them a popular choice for investors looking for safety.
- Stable income: Government bonds provide a steady stream of income through a fixed interest rate. This can be very useful for people who need a regular income, such as retirees.
- Tax benefits: In many countries, interest from government bonds can be exempt from income tax, increasing the real return for investors.
2. Corporate bonds
What are corporate bonds? What types of corporate bonds are there?
Corporate bonds A corporate bond is a type of bond issued by companies to raise capital for business activities such as expanding production, investing in new projects or restructuring debt. Corporate bonds can be issued by companies in many different sectors, from large corporations to small businesses. This is considered an attractive investment tool for investors who are willing to accept a higher level of risk in exchange for higher interest rates and potential growth opportunities. However, careful consideration should be given to the financial capacity of the issuing company and other relevant factors.
Current types of corporate bonds include:
- High-grade corporate bonds: These are bonds that have priority over other bonds in case a company gets into financial trouble. They usually have lower interest rates due to their higher level of safety.
- Junior Corporate Bonds: These bonds have a lower priority for payment than senior bonds. Therefore, they usually have a higher interest rate to compensate for the higher risk.
- Convertible bonds: These are bonds that allow the investor to convert into shares of the issuing company at a certain time or under a specific condition. This provides an opportunity to take advantage of the growth in the stock price.
- Secured bonds: These bonds are secured by specific assets of the company. If the company is unable to repay the debt, these assets can be liquidated to repay the investor.
Characteristics of corporate bonds and benefits of investing in them:
- Higher interest rates: Corporate bonds typically carry higher interest rates than government bonds, due to the higher level of risk associated with the company's ability to repay the debt.
- Flexibility: Corporate bonds offer a wide range of maturities, types and risk levels, allowing investors to choose the one that best suits their investment goals.
- Growth opportunities: Convertible bonds offer the opportunity to participate in a company's growth through conversion into shares.
3. Bank bonds?
What is a bank bond?
Bank bonds is a type of bond issued by banks to raise capital for banking activities such as lending, expanding services, or capital management. This is a popular financial instrument in the banking industry, providing opportunities invest for investors and at the same time help the bank maintain efficient operations.
Characteristics of bank bonds and benefits of investing in them:
>>> See more articles: CREDIT DEMAND INCREASES TOWARDS THE END OF THE YEAR, BANKS WILL PROMOTE BOND ISSUANCE
- Fixed or variable interest rate: Bank bonds can have a fixed interest rate, meaning the interest rate does not change during the bond holding period, or sometimes the interest rate fluctuates, adjusted according to market interest rates or a reference index. However, bank bonds often offer higher interest rates than other safe financial instruments such as government bonds, helping to increase income for investors.
- Flexible maturity: Bank bonds can have short-term (less than 1 year) or long-term (over 10 years) maturities, depending on the bank's capital mobilization needs and the investor's investment goals.
- Warrant: Banks are large financial institutions with close supervision from regulatory agencies. Therefore, bank bonds are often considered a reliable investment, carrying less risk than unsecured corporate bonds.
- High liquidity: Bank bonds are often highly liquid, meaning they can be easily bought and sold on the stock market. This makes them an attractive option for investors who need the ability to convert quickly.
Bonds are an important financial instrument that offers investors a variety of options. Understanding What is a bond?, how to buy bonds, understand the types of bonds available on the market, distinguish their advantages and disadvantages from characteristics, benefits when buying to related risks will help you make smarter investment decisions when you want to buy bonds. Whether you are looking for stability from government bonds or profit opportunities from corporate bonds, HVA It is important to be well informed about the different types of bonds and choose the one that best suits your financial goals.
If you want to learn more about the types of bonds and how to invest effectively, do not hesitate to seek advice from financial experts or use reputable trading platforms. Start your investment journey today to gain long-term benefits from the bond market.
