How to purchase bonds

Generally speaking, every person purchasing securities makes investments in his/her own future. The sooner it is done, the better it is for this person. Our old age is secured by pension contributions in some way. However, if there are available funds, it is better to purchase shares or bonds of a prosperous Kazakhstani company instead of purchasing some clothes, household goods or even a car. Any purchase becomes unfit for use or needs ongoing repairs with the lapse of time. But securities tend to rise in price and, therefore, to enrich the holder and his/her children.

Securities are divided into two main categories: equity (shares) and debt (bonds).

What is the Bond?

The bond is a contract under which the issuer undertakes to return the investor the amount borrowed from them as well as to pay the interest during a specified time period. Actually, the bond is a document confirming the debt which can be sold and purchased. The bond is a debt security. The bond purchase means that you grant a loan to the issuer.

The bond is issued for a limited time period. During the term of the bond circulation, the issuer pays the bondholder the mandatory and usually fixed interest of the par value. Unlike shares, the price of bonds is not subject to acute price variations.

The bondholder expects to receive the fixed income in the form of interests from its investments. There are some major differences between shares and bonds. First of all, as already stated, bonds entail much less risks than shares due to their nature. It is connected with the fact that the flow of payments under bonds is known in advance because the time of payments and their amount are fixed clearly.

Thus, the investor is guaranteed to earn fixed income and return of money funds in a definite time period. Secondly, by purchasing bonds, the investor does not assume business risks of the issuing company except for disastrous risks that may result in bankruptcy. But it happens seldom.

It is worth mentioning that payments under bonds are not connected with the amount of the issuer’s profit, development prospects of the industry and economy as a whole. Every company is required to make payments under its issued bonds in full regardless of the results of its activities.

Simply stated, you will be paid everything you have invested, rain or shine. Shareholders may not always expect to receive dividends. If payment of dividends is not made under some certain shares, their price, as a rule, will go down and it will entail more losses. Thirdly, investors can receive additional proceeds from the rise of market prices for bonds. If market prices go up, the investor may sell the securities and earn additional income. In case of a negative price trend, the investor should not worry but wait for redemption of this bond issue. In any case, the investor will earn the income planned.

Thus, bonds are an ideal choice for investors who want to gain income without risks. The market of bonds is ‘smooth waters’ in which one can save their money from inflation and earn significant income as well.

The investors unwilling to wait for the maturity date may choose the bonds with the opportunity of regular early redemption. The holder of such bonds knows the time window, when he/she can sell the bonds if necessary. The issuing company also announces the repurchase price in advance (makes an offer).

The investor may calculate its potential income and assess whether it is profitable for them to use the offer or whether it is better to keep the bonds in the investment portfolio and live off their investments. How to purchase bonds? Bonds exist in the form of the electronic record like other securities. A broker will help you to sell or purchase bonds.

The broker files the order to the stock exchange and another bond will change its holder. Thus, you should enter into the service agreement with the broker and open two accounts. The first account is used to keep the money for the purchase of bonds. The bonds will be kept on the second account (custody account).

If the investor has worked already with other securities, for example, shares, then he/she usually has the above said accounts. In this case, the investor may work with bonds but he/she is required to inform the broker of it.

The broker and the depository keep records of the fact that you have purchased the bond and now you hold it. All purchased bond issues are kept on your personal account. It is kind of a safe for securities. Securities of brokers are kept on a separate account. It is impossible to purchase or sell something accidentally from your safe.