Our team has answered frequently asked questions about bonds.

What is a bond?

A bond is a debt security that entitles its holder to receive the bond’s nominal value along with interest payments, typically in the form of a coupon (for coupon bonds), from the issuer within a specified period.

In simpler terms, by investing in bonds, after the maturity of the bond the investor gets back the money, he/she invested with additional income.

 

Who issues bonds?

Bonds are universal financial instruments, as they can be issued by governments, municipalities, banks and private companies.
 

Why are bonds issued?

Bonds are issued to raise funds from the public for a specified period.

Government bonds are issued by the government or government organizations, while corporate bonds are issued by private companies, including commercial banks.

The government or municipality may issue bonds to cover budget deficits or finance targeted projects. By issuing corporate bonds, companies take on debt to access funding, finance projects, refinance existing debt, or pursue other objectives by directly entering the capital market.

Why invest in bonds? What are the main advantages?

Bonds have several advantages:

✅Bonds give the opportunity to receive predictable and stable income.

✅As a general rule, bonds have a competitive interest rate compared to bank deposits.

✅Bonds diversify the investment portfolio.

Through bonds, an investor can distribute their assets across different sectors, markets, and risk levels.

✅The daily market quotation of listed bonds provides the opportunity to sell the bonds at a higher price before maturity, under favorable market conditions.

✅The interest income from bonds listed until the end of 2024 in the Republic of Armenia is exempt from income tax and non-resident profit tax. 

By the way, income from bank deposits in Armenia is taxed at a rate of 10%.

✅The funds invested in bonds issued by the bank are considered guaranteed bank deposits and guaranteed by the Deposit Guarantee Fund for the amounts stipulated by Armenia’s legislation (to the same extent as deposits.). 

✅As a general rule, listed bonds, which mostly have market makers, offer high liquidity. In contrast, early redemption of deposits may require prior notice and result in a decrease in interest rates.

What does bond underwriting mean?

Bond underwriting is the process through which the newly issued bonds are sold to investors.

Why investing in bonds considered safer than investing in stocks?

As a general rule, bonds are considered conservative investment instruments, so they carry fewer risks than stocks.

• Coupon bonds at least provide a fixed income in the form of a coupon.

• Investing in bonds is relatively safer than investing in stocks. This is mainly due to the fact that debtholders are prioritized over shareholders in the case of bankruptcy, unless there are other conditions specified in the issuance terms.

When is it possible to sell bonds, and what costs are incurred when selling bonds?

Investors can sell bonds on the Armenian Stock Exchange after they are listed, usually 3-4 months after the completion of the placement.

Brokerage fee and stock exchange commission fee are incurred, as well as other associated costs, if applicable.

Is it possible to sell bonds at any time on the secondary market, and how long will it take?

The possibility of selling bonds depends on a number of factors, including infrastructure, market accessibility, the presence of a market maker, and so on, as well as the price at which the investor wants to sell the bonds and whether a buyer for that quantity of bonds is available in the market.

*On the Armenian Stock Exchange, market makers provide daily bid and ask prices with specified minimum volume requirements.

Is it possible for the investor to incur a loss when selling bonds?

This depends on the current market price of the bond. The market price of the bond may differ from the placement price and can be either higher or lower. As a general rule, bid and ask prices are provided by market makers and depend on the demand and supply for the bonds.

If the investor does not sell the bond and holds it until maturity, the investor will still receive their initial investment along with additional income.

Dimension Investments offers a wide range of services related to placement, custody, registry management, brokerage, and securities transactions.

For more information related to the investment securities services provided by Dimension, please visit our website.

For more information about bonds and how to purchase them, please contact Dimension Investments at the following numbers: 010 54 56 70 and 043 882981.

Disclaimer:

    All of the information contained herein is for informational purposes and should not be perceived as a recommendation to sell or buy any security. There is an inherent risk in investing and any capital invested may lose value and cause potential damages. The investor bears the risk associated with investment in securities.

010 545670 | 043 882981 | www.dimension.am

Dimension CJSC is supervised by the CBA.
 

07 Ноября 2024, Четверг | 3202