World Buying Stock

Debt securities or the more commonly known as the bond is one of the investment instruments that are also traded in the secondary market Indonesia Stock Exchange (IDX).

Although it does not have the prestige such as product stocks, but bonds have interest in the product and its place in world capital markets.

In fact, if I may say, still a few who truly understand the mechanism of bond transactions on the trading floor products. When in fact, the product of bonds is one investment that can provide huge profits with minimum risk level.

In a column this portfolio, detikFinance tried to introduce a simple description of this product.

Bonds is one type of fixed income securities categorized. Bonds are debt instruments that contain an agreement or contract willingness of the borrower (issuer / issuer) to make regular payments to the lender (investor) in a certain period.

Of course, the entire principal amount will be refunded at the end of the period of the agreement. Well, the interesting thing is, these bonds can be traded and transferable during the period of repayment period.

Characteristics of bonds divided into four categories, namely the bond issuer, priority, coupon rate of interest and redemption options.

In terms of the issuer, bonds are classified into two types ie Government Bonds and Corporate Bonds. Both have a different characteristic.

Government bonds typically have a lower interest coupon rate which would give yield to maturity (YTM) is lower as well. However, the level of risk may be said almost nothing. Therefore, these bonds are fully guaranteed by the government, so the unlikely event of default.

Corporate bonds usually provide a level of higher interest coupon which would provide a higher YTM anyway. But the level of risk is higher, because the private companies always have the possibility of default. Therefore, corporate bonds are usually accompanied by attractive features that are commonly known as the sweetener (sweetening).

In terms of priority, the bonds are divided into two types of bonds senior and junior bonds (subordinated bonds / subdebt). In government bonds this classification does not exist.

The difference between the two types of bonds is the priority when there is a condition of default (default). If a corporation’s default, the lender’s senior bonds will be prioritized for payment.

While the junior bonds get second place after the payment to holders of senior bonds

is completed. Therefore, the coupon rate offered at the junior bonds are usually higher than senior bonds, because the assumed level of risk is greater.

From the side of the coupon interest rate, in general there are three types of coupons are valid in Indonesia is a fixed interest coupon, coupon and zero coupon interest floater.

Provide a fixed interest coupon rate of return (return) which remained since the beginning of the bonds issued until maturity. So that the calculation of interest to be paid and the bond issuer for bond investors YTM calculation becomes easier.

Coupon interest floaters provide returns that vary according to the reference interest rate. Typically, the benchmark interest rate on SBI (Bank Indonesia Certificate).

Zero coupon bonds do not give a coupon interest payable, but rather the provision of discounts on the initial bond offering. For example, company A is issuing bonds worth Rp 1 billion, then the price to be paid by investors, you name it, amounting to Rp 900 million.

Later at maturity, the issuer will pay the full amount of Rp 1 billion. So investors will get a coupon payment in advance.

In terms of redemption options, generally consisting of call options, put options and conversion options. Call option (call option) is a right held issuer to buy back (sort of buy-back) at a certain period before maturity bonds.

Conversely, a put option (put option) is a right held by bond investors to sell back its bonds to the issuer of the bonds. However, the put option is rarely granted, because it is not profitable for the issuer.

Investing for the community should become a lifestyle trend. No longer limited to just think ‘saving’ and put the funds on deposit that supposedly most secure investment instrument. Begin turning to the stock. Why?

Simple indicator is the increase in the Composite Stock Price Index (CSPI), which reached 46.13% to a level of 3703.512 during 2010, and is predicted to continue in this year.

According to research results of PT Bahana TCW Investment Management, the strategy of investing in 2011 is to minimize the allocation of liquidity, either cash or deposits. The problem of excess liquidity to keep interest rates remain low, so the acquisition can not cover inflation.

Let’s look at interest rate movements on the type of investment deposits. Since 2005, the government cut fuel subsidies and the allocation of the global crisis that terrible incident in 2008, causing deposit rates continued to decline. Until the acquisition of interest on the bonds can not fight inflation, mainly of food commodities and education.

Indeed during the 1998 crisis, the government became fully ensure public funds are deposited in the deposit. So forget the notion that the deposits as a profitable and safe investment.

Trimming the fuel subsidy is causing inflation and cause interest rates rise. But it turns out the positive impact, especially foreign investor confidence, actually increased.

Furthermore, not only foreigners who buy government bonds, but also domestic banks. Proceeds from sale of state bonds has raised additional funds of banking, even exceeding the purposes for which credit has actually been increasing.

As a result, excess funds are collected in Bank Indonesia Certificates (SBI), and ultimately be borne by the central bank.

Bank Indonesia (BI) instrument makes interest rates as inflation control through the absorption of liquidity. If the rupiah liquidity is absorbed, there can be reinforcement that reduces the risk of inflation. During the height of bank money in SBI, the bank is relatively not so needy of public funds as reflected in relatively low deposit rates.

An alternative solution is to stock investing. Shares of commodity sector remains one of the main drivers of investment in the stock market. But the expectation of rising stocks will not last year.

“We think the expectations are the benefits to follow the historical average of 20%, according to the long term nominal GDP growth of Indonesia,” explained Director of Research and Investor Relations Investments on the type of bonds or corporate bonds also worth ogled. Investors can choose a corporate bond with a good credit rating, rather than government bonds. Treasury bond yield mapping for the tenor of 10 years, in late 2010 at 7.6% level. This figure is lower than the average 10-year inflation of 8.3%.

“Indeed, inflation in 2011 could be less than 8.3%, so the yield on Treasury bonds are very attractive. But investors should be alert to secure itself when inflation soared,” he said.

Other investment alternatives can be done in non-listed companies through private equity fund. Especially when the price of stocks and bonds are considered expensive, while the low-interest bonds awake.

The advantage to invest in private equity funds is the dividend. In addition, there is potential for greater profit when released into the market the company’s business capital as a public company.