Bond loan as a way to attract investment resources

For many years in our country, a bond loan (bond) was considered a primitive way of investing. But this state of affairs did not last long, and today it is one of the most competitive tools to multiply funds. Its potential is huge: from income in the form of current interest to capital gains. But this requires the obligatory knowledge of the investor: from the basic basic concepts to the specific nuances of the markets. About what is a bond loan, we'll talk in more detail later.

Definition

Bonds are issuable securities that assign to its holder the right to receive their nominal value from the issuer and the stipulated percentage of this value. If this does not contradict the law of the Russian Federation, then they may provide for other property rights.

A bond loan is a market instrument that allows enterprises or states (issuers) to obtain the necessary amount of money through their sale to investors. The latter get an opportunity to increase their capital by means of a reverse sale of bonds after a certain amount of time at par, as well as at the expense of interest on them.

Difference from shares

A bond (bond) has a similar concept with shares: both of them provide payments and are quoted on various exchanges. But the first type of a security is a loan commitment, and the second (shares) provides for a certain share in the enterprise.

Types of bonds by maturity of loans

Depending on the time during which the issuer must pay with investors, there are three types of securities:

1. Long-term bonded loan - over 10 years of repurchase period. As a rule, investors are states or large financial corporations. There are different coupons on them, that is, interest is paid to its holders.
2. Medium-term - from 1 year to 10 years. Designed to finance investment projects. The medium-term bond loan has the largest share in the bond market.
3. Short-term - from several months to one year. It has a purpose to cover the budget deficit and solve the current financial problems. Risks, as a rule, are higher for them, despite the shortest period, since the issuers are unstable companies. But their advantage is considered to be a high nominal value for the repurchase. As a rule, a short-term loan is free of charge, that is, they do not pay interest to the holder.

Reasons for issuing bonds

Many beginning investors have a question: why should organizations become an issuer of bonds? Why not use, for example, a bank loan? But there can be several reasons:

• The issue of bonds is more profitable than a bank loan.
• The bank refused a loan.
• The credit institution lacks liquid funds, for example, for huge investment projects.
• The enterprise needs funds for several months, etc.

Methods of payment of income and repayment

There are several types of bonds by the way of repayment:

• Discount bonds are a type of loan in which interest is not paid to the investor. But its face value is much higher than the real one, that is paid, hence the name from the word "discount" is a discount.
• Coupon bonds are a type of loan for which monthly interest is paid, which is the main profit for the investor. The nominal redemption value, as a rule, is equal to what was originally spent.
• Bonds with a mini-coupon are a type of loan, in which both the discount system and the coupon are applied. That is, small interest is paid to the investor, and the nominal value is slightly higher than the amount spent.

In the early 90's. Last century, inflation in the country was so unpredictable that the bonded loan was equated to various economic indicators: the market value of real estate, the rate of gold, etc.

Factors affecting the market value of a bond

Issue of bonded loans is the issue of securities that are sold on the exchange markets. That is, bonds are sold and resold by brokers, investors, speculators, etc. If an investor purchases a bond, this does not mean that only he has the right to demand his face value from the issuer. It is owned by any person who at the time of settlement of the bonds bought out the right to make a settlement.

All bonds are bought and sold on the stock exchange. Their market value depends on the following factors:

• The economic situation in the industry, the country, the world. In times of various crises, investors do not want to take risks and prefer to have a "bird in hand". So they start selling bonds to save their money. In addition, many issuers throw new lots of bonds onto the market. As a rule, these are short-term, in order to stay afloat, not to go bankrupt in a difficult economic environment.
• The maturity of the bonds.
• Percent of coupon.

State bonded loan

Those who lived in the Soviet Union, often faced with the concept of state short-term bonds, or government short-term bonds. This is not surprising: the authorities often asked for help from their people. At that time it was almost the only source of legal investment. Private property was absent, therefore, and securities, too, including any types of shares and bonds. Of course, interest on GKOs was small, but, nevertheless, they were higher than Sberbank (the bank was also the only one in the country before the perestroika period).

Today, state bonds are not a thing of the past. The authorities, especially in the crisis, also borrow money from the population. The main features of government bonds:

• Low level of income for them, compared to bonds of private companies.
• High warranty. The state can not go bankrupt, but, according to the experience of 1998, we say that it can declare a default, that is, a refusal to pay debts, and this is in fact one and the same thing.
• The low level of income, in some cases, is compensated by the benefits of personal income tax (personal income tax). If, of course, the tax resident has an official source of earnings.

Functioning of the government bond market

The modern GKO or OFZ (federal loan bonds) market has been operating since mid-1993. For this purpose, an entire infrastructure was created, the main components of which are:

• Ministry of Finance of the Russian Federation (issuer OFZ).
• The Central Bank of the Russian Federation - performs controlling and regulating functions. He holds auctions, redemption, prepares various documents. The Central Bank is trying to maintain the level of GKO market indicators: profitability, liquidity, and so on.
• Official dealers. These are various commercial banks, brokerage firms that bring their own funds and the money of their clients to the marketplace on the market.
• Moscow Interbank Currency Exchange (MICEX). Performs the functions of a trading platform on which all operations take place.

Investing in the future

Now more about the long-term bonded loan. "Long-term or short-term is better?" - Many novice investors ask. The question, of course, is incorrect, because everything depends on the following factors:

• The nominal price.
• Level of trust.
• Interest on coupons.

There are times when it is more profitable to invest in long-term investment projects and receive interest on coupons for life than investing in short-term loans that will yield at a profit rate.

Classification of bonded loan by subject of rights

According to the subject of rights, bonds are classified into:

• Registered;
• To the bearer.

The names are issued by the issuer individually, and interest on them goes to investors' own accounts. Bearer bonds are not fixed by issuers, for example, stock exchange. They are quoted on stock exchanges and all operations on them are fixed by special brokers.

Estimation of investment qualities of bonds

Before investing an investor in bonds, it is necessary to assess them in the following areas:

1. Determines the reliability of the company to implement interest payments. To do this, you need to know the amount of its annual profit and all interest payments. If they are 2-3 times less than the enterprise's income, then you can trust it as an issuer of bonds. This condition indicates a stable state of the firm. Such an analysis is best done in a few years. If the trend increases (the percentage of payments decreases every year), then such a company increases its potential, if, on the contrary, the payout percentage increases, then it goes to bankruptcy.
2. Evaluation of the company by its ability to repay the debt on all grounds. In addition to bonded loans, the firm may have other financial obligations, for example, loans.
3. Evaluation of financial independence of the company. It is believed that the firm does not depend on external sources, if the amount of debt does not exceed 50 percent.

Risk

Risk - this is the probability of occurrence of losses or shortfall in expected profits. Investing is not a lottery, where the probability is 50 to 50. These are weighted, pragmatic decisions. But sometimes it happens that even the most stable and successful companies are ruined.

To avoid mistakes and reduce risks, various rating and rating systems are used in the stock market:

• A ++ - maximum safety assessment.
• A + is a very good company.
• A is a good company, but its position can be unstable.
• In ++ - the average quality.
• B + is below average.
• B - poor quality.
• C - speculative bonds.