Government Bonds are well-known as one type of investment that offers various benefits. From coupons or periodic yields to capital gains. In addition, Bonds are also considered secure because they are guaranteed by the government.
Unfortunately, investors should not only look at the benefits. There are also the risks from bond investment, such as interest rate risk which is inversely proportional to the Bond price. To avoid this risk, Bonds management is also worth paying attention to. Read through the explanation to the end.
How to Manage Government Bonds Effectively
Bonds are debt securities where the issuer of bonds can come from corporations or the government. Government Securities (SBN) is the most popular type of government Bonds because of the level of security guaranteed by the government.
The function of Government Securities (SBN) is to finance the state budget, in which investors lend money to the government. You as a holder of Government Securities (SBN) will get benefits in the form of coupons or yields.
There are several types of Government Securities (SBN) with different characteristics. Such as Savings Bond Ritel (SBR) which has a term of two years. SBR can be redeemed early because of the early redemption facility. There is also a Sukuk Tabungan (ST) which has the same period of 2 years, with a floating yield and a minimum value.
The third type of Government Bonds is Obligasi Negara Ritel (ORI) with a period of 3 years and redemption in maturity. The type of ORI coupon is fixed rate. Lastly, Sukuk Ritel (SR) has the same characteristics as ORI. Both SR and ORI have monthly coupon payment periods.
Recognizing the types of Bonds is the basis that investors must understand for easier management. As long as you know the types, it will be easier to decide which product to buy.
In addition to recognizing the types of Government Bonds, the following management tips are also worth nothing.
1. Choose the Right Bond Products
Proper management starts from the selection of Bond products. There are several tips for choosing the right product, which is related to the coupon and tenor. You need to calculate the number of coupons received and the number of times they are paid according to the tenor.
You also have to calculate how much profit if the Bond is held to maturity or when it is sold prior. Is the profit obtained high enough even though the coupon is given every month, meaning that the product has the potential to be more profitable in the future.
Also pay attention to the yield to maturity, which is when investors manage to hold bonds until maturity. This means that the yield given is also higher.
2. Implement the Buy and Hold Strategy
The easiest way to manage Government Bonds is to buy the product and avoid resale. This means that you have planned carefully about financial matters during investment.
You will only withdraw funds after the Bond has matured. Then the return obtained and the principal investment is 100%. You just have to choose which product has a significant increase potential and a tenor that suits to your investment goals.
For example, you can choose a bond with a tenor of 1 year with a coupon payment at the end or a no-coupon type.
3. The Right Time to Resell Bonds
Monitoring Bond developments is highly important so that you stay up-to-date with the latest opportunities. In particular, you can know the time to sell bonds in order to avoid losses or even gain profits in the form of capital gains (the difference between buying and selling prices).
The exact time is of course depends on the market price compared to the principal nominal of the Bonds. When the market price is less than the principal amount of the bonds, it is called the discount price.
However, when the market price is higher than the principal amount of the Bonds, you can get a premium price. Which price is right for you depends on whether you want to buy or sell Bonds.
4. Implementing a Quasi Passive Strategy
The function of this strategy is to know the potential return and the character of the risk. If in strategy number 2 you focus on safe and reliable products, here you can calculate the potential return.
You can start by compiling a bond portfolio to fit the potential return that has been informed by the issuer. The goal is to make it easier to track Bond issuance until maturity.
5. Implementing a Quasi-Active Strategy
In this strategy, the goal is the same as before, namely to find out the potential return, only within a certain period of time. Find out based on the average maturity period of the Bonds.
This calculation can provide accurate information on the volatility of Bonds. Even though you will later buy Bonds with the aim of maintaining until the end of the tenor. This strategy can minimize losses when a price decline occurs.
6. Implementing Dedicated and Active Strategies
This strategy aims for optimal returns. Calculate it by focusing on the increasing risk which commonly occurs.
For example, how to anticipate an increase in interest rates, time to valuation.
Many scenarios can be tested on the product while you are calculating it. So you will know what the maximum and minimum potential are after entering the risks that often occur.
Easily Manage Bond Investments in DBS Treasures
No less important than the six ways of bond management above, you must also choose the right wealth management partner such as DBS Treasures priority banking. Whether it's in terms of product selection and access to features that will make your transactions much easier.
DBS Treasures really understands customers' needs in Bond investment, offering the following benefits.
1. Bond Products Issued Directly by the Government
The products available through DBS Treasures consist of Government Bonds, issued with the government. The reason why this product was chosen is because of the guarantee from the Law.
You will feel safe by choosing the available products because of the guarantee. The default risk will also be minimized so that the expected potential return can be realized.
2. Providing Products with Compre-hensive Range
The advantages of DBS Treasures are not only offering Government Securities (SBN) but also a wealth of options. You can choose bonds with maturity periods that suit your investment objectives, starting from one year.
Another option is that the currencies available include IDR and USD. You can determine which one suits your needs.
3. Offer Regular Coupons
Not planning to implement a buy and hold strategy? Worried if the product you purchased suddenly decreased in value? Don't worry, DBS Treasures provides products with regular coupons.
Some of the products offer regular coupons every month, some are quarterly. So you will still gain immediate return.
4. Potential to Provide Capital Gain
Those of you who have monitored the timing of buying and selling bonds can earn potential capital gains. Bond investments do not always have to be held to maturity. As long as you monitor its developments carefully.
5. Offer Competitive Coupons
The value of the return is also a factor to consider when you choose a product. DBS Treasures provides products with competitive coupons. The coupon value is above the average Fixed Deposit interest rate. This of course makes calculations easier.
6. There are no additional costs when buying and selling
As long as you are buying and selling Bonds, no additional or hidden fees will be charged. The cost is only the difference between the selling and buying prices.
7. Access Transactions Anytime
You can easily access all Bond products in DBS Treasures and trade at any time, 24/7. You can access it through the digibank by DBS Application.
Many strategies will help you manage Government Bonds properly. Consistent in analyzing and adding insight about Bond investment is the most powerful way that all investors, including you, must do.
Moreover, with the ease of access to investment through DBS Treasures, of course, investment management is made easy. You can entrust your funds to DBS Treasures so that your investment can work optimally.
As long as you don't delay investing, goals like buying a car, house, or even adding property can be achieved. Make sure you invest confidently with DBS Treasures, the seven benefits above will be easy for you to gain.
