Bonds are one of the investment instruments in the form of securities that are still not widely known by the public. Actually, what is meant by bonds? What do you need to know if a beginner investor wants to invest in bonds? What are the types and what are the benefits from them? Let’s look at the discussion about the following bond investments.
Get to know the Bond Investment Instrument
For some people, bond investment is still a common thing and is widely known. This is because the average community is not too familiar with the form of bond investment, so there are still many who save their money on deposits.
However, the investment from saving money on deposits does not guarantee the value of one’s money is not eroded by inflation. In response to this, bonds can be an alternative investment because they can provide higher investment returns.
Bonds can be the answer for those who want to seek investment security for financial needs in the future. Before going further to bond investment, let’s discuss together, what are bonds.
Bonds are a term on a stock exchange that refers to securities or certificates that contain a debt recognition contract for a loan received by the party issuing the bond from the lender (investor), in this case the bond investor.
Investing Bonds means lending money to invest, while issuing bonds means owing money. Obviously, the bond issuer is the party who owes and the bond holder is the party who invests in debt.
In bonds, the maturity date of debt repayment and its interest (coupon) are the obligations of the bond issuer to the bondholders. The tenor of the bonds that are valid in Indonesia is generally 1 to 10 years.
Why Are Bonds Published?
Bonds are a method used by the state or corporation to raise funds from the public / investors. The issuance of bonds is motivated by efforts to raise funds from the public that will be used as a funding source.
Later, the issuer of the bond will return the funds within the stipulated period plus the yield which is also set at the beginning.
When viewed from a businessman’s perspective, the goal of the company is to issue bonds is nothing but because it requires additional fresh capital. Usually incoming funds will be used to expand or pay for other debts that are due.
While from the state’s perspective, bonds are issued as a source of funding to finance part of the budget deficit in the State Budget.
In RI Law No. 8 of 1995 concerning the Capital Market stated that bonds are one type of securities (securities), and in trading bonds, the transactions cannot be carried out arbitrarily, but must be through an institution in this case the institution where the securities are traded is the IDX (Stock Exchange Indonesia).
Because it can be bought and sold, then after making a bond purchase, an investor can sell the bond back on the Indonesian stock exchange, so that the investor no longer has the right to the coupon or return the bond principal after selling it.
Types of Bonds
Bond investment instruments also have various types, which are distinguished by several categories, according to their functions. There are many benchmarks that can be used to distinguish types of bonds, these are the types of bonds.
# 1 Bond Based on the Issuer
Based on the issuer, the bonds are divided into 3, namely:
- Corporate Bonds , which are types of bonds issued by companies, both Government (BUMN) and private, for example, bonds issued by PT Hutama Karya.
- Government Bonds , which are types of bonds issued by the central government. For example: bonds that are named Retail Government Bonds (ORI) are issued one series each year, except for 2007 and 2008 issued in two series.
- Municipal Bond , which is a type of bond issued by the Regional Government with the aim of financing development related to the public interest.
# 2 Bonds Based on the Guarantee
Based on the guarantee, the bonds are divided into 2, namely:
- Secured Bonds , bonds that are guaranteed by using certain assets owned by the issuer, or can also be guaranteed by using a third party. This type of bond is still divided into three, namely:
- Guaranteed Bond , which is a bond guaranteed by a third party.
- Mortgage Bond , which is a bond that is secured by a mortgage or fixed asset.
- Collateral Trust Bond , which is a bond that is guaranteed by using securities owned by the issuer.
- Unsecured Bond , which is a bond that is not guaranteed by using certain assets owned by the issuer.
# 3 Bonds Based on Exchange Rights
Based on its exchange rights, the bonds are divided into 4, namely:
- Convertible Bonds , bonds that can be exchanged with shares of the issuing company. This means that the bond gives the bond holder the right to convert the bonds held by a number of shares owned by the issuer.
- Exchangeable Bond , a bond that gives the bond holder the right to exchange bonds with a number of shares of the issuer’s affiliated company.
- Callable Bond , a bond that gives the issuer the right to repurchase bonds at a certain price throughout the life of the bond.
- Putable Bond , a bond that gives investors the right that requires the issuer to repurchase bonds at a certain price throughout the life of the bond.
# 4 Bonds Based on the Interest Payment System
Based on the interest payment system, the bonds are divided into 3, namely:
- Fixed Coupon Bond , which is a bond with an interest coupon rate that remains until the bonds are due.
- Floating Coupon Bond , which is a bond with a variable rate of interest coupons that periodically refers to the interest rates of other instruments, usually plus a premium, for example SBI + 3%.
- Zero Coupon Bond , which is a bond that has no coupon interest. These bonds are issued at a discount, and will be paid in full at maturity.
# 5 Bonds Based on Market Segmentation
Based on market segmentation, bonds are divided into, among others:
- Bulldog Bond , which is a bond denominated in British currency.
- Matador Bond , which is a bond denominated in Spanish currency.
- Samurai Bond , which is a bond denominated in Japanese currency.
- Kangaroo Bond , which is a bond denominated in an Australian currency.
- Yankee Bond , which is a bond denominated in American currency
- Maple Bond , which is a bond denominated in Canadian currency.
- Panda Bond , which is a bond denominated in Chinese currency.
- Arirang Bond , which is a bond denominated in Chinese currency.