Bonds Investing

Investing in bonds

What is a Bond?

A bond is a debt security issued to raise funds. It is kind of like a bank loaning money except that this time you are the person giving out the loan at a promised rate of return.

us-government-bond
Bonds used to look like this

Types of Bonds

  1. Corporate bonds: issued by companies
  2. Government bonds: issued by governments

 

What do You receive as a Bondholder?

  1. Interest payments (coupons)
  2. Your principal sum on maturity (par value)

 

Risks

Bonds used to be perceived as low-risk investments which tends to move opposite of interest rates & shares. A typical asset portfolio in the old days would consist of shares & bonds.

However, today bonds are at risk of failure from companies (and even governments!). Depending on the bond rating, bonds can range from a low-medium to high risk investment.

 

Bond Ratings

There are 3 major bond rating agencies that assign a creditworthiness score to bonds issued.

  1. Moody’s
  2. Standard and Poor’s
  3. Fitch Ratings.

bond-ratings

 

Buying Bonds

It has become easier for individual investors to buy bonds in recent years. However, bonds still require typically $25,000 (RM100,000) and above to invest for some degree of diversification. If you have a smaller amount to invest, consider bond funds.

 

Bonds Consideration

  • Credit Rating
  • Price
  • Maturity
  • Yield-To Maturity (YTM)

 

More Info

  • FSM Bonds (fundsupermart.com.my)
    Bonds from RM10,000 and for sophisticated investors only

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