All about 'Bond Investment': A comprehensive guide
In addition to basic financial products such as deposits, savings, and insurance, there are more aggressive investment options for those interested in strategic financial management. One of these options is related to 'investing' and involves relatively stable choices like stocks and bonds. Let's delve into bond investment, specifically looking at relatively stable bonds, bond funds, and more.
'Bonds' are negotiable securities issued by governments, public institutions, or corporations to raise large amounts of funds. They can be seen as "documents proving government, institution, or corporate indebtedness." Bond investment refers to lending money to governments, public institutions, or corporations for a specific period, receiving interest during that time, and getting the principal amount back upon maturity. As they are issued by governments, local governments, public institutions, or corporations, they generally offer higher stability. In uncertain market conditions, investors have the option to sell them in between or hold them until maturity, making risk management possible.
Before starting a bond investment, let's explore the different types of bonds available:
1. Depending on the issuer: 'Government bonds' issued by the nation are considered the least risky. Other types include 'Municipal bonds' issued by local governments, 'Special bonds' issued by public institutions, and 'Corporate bonds' issued by corporations.
2. Depending on the maturity period: Bonds can be classified as 'Short-term bonds' if their duration is less than one year and 'Medium to Long-term bonds' if they average around 2 to 3 years.
3. Depending on the guarantee: Bonds can be further classified as 'Guaranteed bonds' and 'Non-guaranteed bonds.'
How to invest in bonds?
Investors can check bond product information on the websites or apps of securities companies. Before buying bonds, it's essential to set 'profit' and 'risk' goals.
1. Profit goals can be determined based on the bond product's 'interest rate.' Bond funds sold by securities companies often indicate the target return for specific timeframes. This information helps investors understand the expected returns and the trend of interest rates.
2. Risk goals refer to estimating how much investment risk one is willing to bear. Despite being safer than stocks, bonds also carry risks related to default, credit, and liquidity, among others.
Bond investment strategies can be broadly categorized into two approaches: 'Direct investment,' where investors participate directly in bonds, and 'Indirect investment,' where they invest through bond funds managed by experts.
For beginners, many opt for investing in bond funds. These funds can be purchased not only through securities companies but also through banks. Bond funds that comprise 100% bonds offer higher stability but relatively lower returns compared to equity funds. To balance this, mixed funds combining bonds and stocks have gained popularity.
How to earn profits from bond investment?
Unlike stocks or real estate, bond products have predetermined future yields. If an investor holds the bond until maturity (regardless of fluctuations in bond prices), they receive interest and the principal amount. Furthermore, if the credit rating of the issuer improves during the investment period, the bond price may rise, allowing investors to sell before maturity and earn a profit.
It's essential to note that even though corporate bonds offer higher returns, they carry higher risks if the issuer's credit rating is lower (e.g., BB). Therefore, thoroughly examining a company's financial situation and credit rating before purchasing bonds is crucial.
[Tip] Profits obtained by holding bonds until maturity are subject to a 15.4% tax. However, the gains from trading bonds, if directly invested, are eligible for tax exemptions (not applicable for bond fund investments).
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Recent financial news suggests that investors are adopting a more cautious approach. Domestic equity funds have reduced by approximately 2-3 trillion won, while bond funds increased by nearly 5 trillion won. This shift in market sentiment reflects the increasing number of individuals considering bonds as a viable investment option amid growing market volatility and concerns about economic downturns.
For those unfamiliar with bonds, it's worth noting the advantages of bond investment compared to traditional savings or time deposits:
1. During periods of falling bond rates, investors can benefit from capital appreciation, which is not possible with fixed bank interest rates.
2. Bonds offer greater liquidity compared to time deposits. Investors can sell bonds at any time.
3. The tax benefits of bond investment are advantageous. While interest rates on time deposits are subject to tax, bond returns can enjoy exemptions beyond the specified interest rate.
It is crucial to remember that various financial products, such as bonds, exist beyond conventional options like savings or time deposits. Understanding the fundamental characteristics and trends of bonds will expand one's investment horizon and financial expertise.