When investing in each type of Bond there is a term commonly known as Floating with Floor or floating coupon and refers to the prevailing interest rate. This concept has an important role in the profits of the Bond investment that you do.
Therefore, if you want to order or buy SBR or Savings Bond Ritel, of course you must know what the applicable terms are, including Floating with Floor. Not only for novice investors, but for those of you who have experience in the investment world, you must also understand this term.
Now to find out what Floating with Floor is, please refer to the explanation below, starting from its meaning and the advantages in the investment world.
Definition of Floating with Floor
As you already know, Floating with Floor is a term in Savings Bond Ritel investment or commonly known as SBR. This term refers to the type of interest or coupon that investors will get.
In other words, Floating with Floor is a type of floating coupon that refers to the reference interest rate and the amount can change according to the BI 7 Day Reverse Repo Rate or BI 7DRRR.
With this condition, if there is an increase in interest rates at BI, the yield of the SBR coupon that you gain as an investor also has the potential to increase. What's interesting is that there is a minimal coupon value that will keep it from falling below the threshold.
So that the value of the return you gain will remain at the minimum coupon that has been determined. This minimum coupon value is usually set by the government, and every three months a review of the coupon value will be carried out referring to the BI 7DRRR.
This type of Bond coupon turns out to provide various benefits for investors. What's more, Floating with Floor opens up the increase potential alongside the interest rates which can be an alternative for other investors to generate optimal returns.
To find out what are the advantages of using a Floating with Floor coupon, let's look at the explanation we have prepared for you.
Advantages of Using Floating with Floor Coupons
As an experienced investor, you are always looking for profitable and safe investment instruments from Bond issuers. This is why you can use the Floating with Floor coupon.
Not without reason, this type of coupon refers to BI 7DRRR and has other advantages for you as an investor. Then what are the advantages? Here is the explanation.
1. More Optimal Return Potential
The Floating with Floor Coupon provides a more optimal profit potential for investors in this field. This is proven by the data from CNBC Indonesia which states that the average Floating with Floor coupon rate is higher than 2.05% per year from the minimum limit.
Due to the potential of gaining higher return, you as an investor have a high chance of gaining optimal passive income every year throughout the investment period. Of course you want to gain the optimal profit.
2. Potentially Rising Interest Rates
The type of Bonds investment in securities products with Floating with Floor coupons provides the potential for increased coupons during a certain period. The coupon value refers to the interest rate in BI 7DRRR, so that investors have the potential to receive returns higher than the minimum coupon limit.
To calculate the return on investment, you can use the following formula:
Minimum Coupon = BI 7DRRR + Spread (change in interest rate percentage)
For example, you invest in government securities with the SBR011 series and have a Floating with Floor coupon of 5.50% per year. In this condition, investors have the potential to profit more than that percentage when interest rates from BI rise and you will gain a minimum of 5.50% return per year. To be clear, let's understand the simulation below.
BI 7DRRR = 3.50% and 200 bps spread = 2.00%
So, minimum coupon = 3.50% + 2.00% = 5.50%
So if BI 7DRRR increases to 4.00% in September 2022, then the Floating with Floor coupon which is valid for the period September to December 2022 will be 6.00%.
Meanwhile, if it decreases by 3.00%, the coupon in the same period will be at a minimum value of 5.50%. So you will always gain a minimum return of 5.50%.
From the benefits of Floating with Floor, it can be concluded that this type of Bond can be the right choice for those of you with a conservative risk profile.
This is because the risk of loss is relatively minimal in investing and has the potential to gain increased return every year or in terms of investment certain period. But this must be done with the right product from a trusted Bond issuer.
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