In the midst of unstable economic conditions or when facing uncertainty, one thing that deserves caution is a financial crisis. This is quite reasonable given its connection to global economic conditions. Especially during the pandemic some time ago, when economic conditions deteriorated and caused many countries to plunge into the abyss of recession. These are the kinds of things you need to be wary of in the current economic situation.
There are several ways you can minimize the impact of a financial crisis should it occur, for instance by adding sources of income, or if you already have sufficient savings, why not try investing?
For some people, investment is still considered a taboo activity. Instead of investing, they often keep their money in regular bank savings accounts. Yet, as we know together, keeping savings in a bank cannot expect large returns because savings interest rates are certainly smaller compared to the inflation rate. So what solution can be used? The answer is by investing.
On this occasion, we will discuss further about what is meant by investment, specifically bond investment products.
Key Takeaways:- Investment is an activity of capital placement carried out by investors toward an institution or organization for a certain period with the expectation of obtaining profits.
- Bonds themselves are debt securities issued by the state or corporations for a certain period.
- There are 3 types of bonds: government bonds, corporate bonds, and municipal bonds.
What Is Investment?
For those of you who frequently engage in financial activities, it probably doesn't feel too unfamiliar when hearing the term investment, does it? Investment is an activity of placing capital, whether in the form of money or other valuable assets, into an object, institution, or a party with the hope that the investor will gain profits after a certain period.
According to the Indonesian Dictionary (Kamus Besar Bahasa Indonesia), investment is the placement of money or capital in a company or project for the purpose of obtaining profits. According to the Financial Services Authority (Otoritas Jasa Keuangan), investment is capital placement, usually long-term, for the procurement of fixed assets or the purchase of shares and other securities to obtain profits.
If we draw a broad line, investment is an activity of capital placement carried out by investors toward an institution or organization for a certain period with the expectation of obtaining profits.
There are quite a few reasons why you need to invest, among them the goal of obtaining fixed income. This is based on the nature of an investment that has returns according to your risk profile. The riskier an investment asset is, the greater the potential return you will receive, and vice versa.
In addition, by investing you also play a role in protecting some of your assets from the erosion of inflation, which of course moves very fluctuatively every year, especially if during that time the world's economic and geopolitical situation is unstable. That's where investment will maintain the value of your assets so they don't decline.
What Is Bond Investment and Its Types?
Bonds are debt securities issued by the state or corporations for a certain period. With bonds, corporations or the state owe you as an investor and are obligated to pay during the mutually agreed period.
This type of bond investment is included in one of the relatively safe investment instruments, considering the fairly low default risk. Especially if you choose to place your money in government bonds, the money you have deposited will be 100% guaranteed by the state through Law No. 24 of 2002 concerning State Debt Securities.
In the repayment process to investors, the debtor in this case the corporation or government will use payment coupons to pay the debt to investors along with interest payments. Usually, coupon payments are made every month and will be directly deposited into the recipient's account.
For further discussion, let's discuss the types of bonds available in Indonesia as follows:
Government Bonds
As the name suggests, government bonds are securities issued by the government and intended to help the government in building the nation, in this case assisting the state budget (APBN). An interesting aspect of government bonds is that the bond coupons to be paid to investors have higher interest rates compared to deposit interest rates, which are often used as a safe investment instrument option. However, of course, the interest generated by bonds will refer to the interest rate level issued by Bank Indonesia.
Government bonds, in this case called State Securities (Surat Berharga Negara or SBN), are divided into two types: State Debt Securities (Surat Utang Negara or SUN) and State Sharia Securities (Surat Berharga Syariah Negara or SBSN). Conceptually, both SUN and SBSN have similar working methods, but SBSN adopts sharia principles in its trading process. This has also been regulated in Law Number 19 of 2008 concerning State Sharia Securities or SBSN.
Then in market transaction practice, SUN itself is divided into two: Government Bonds (Obligasi Negara) and State Treasury Bills (Surat Pembendaharaan Negara or SPN). The striking difference between the two is the maturity period of bonds under 1 year for SPN, so this type of bond is rarely traded.
Government Bonds themselves are divided into two parts: Foreign Currency Government Bonds and Rupiah Government Bonds. Foreign Currency Government Bonds are all Government Bonds denominated in US Dollars, often called INDON, and have a fixed coupon rate. Because they use US Dollar currency, INDON movements more closely follow the movements of US government bond yields or US Treasury.
Meanwhile, Rupiah Government Bonds are all Government Bonds denominated in Rupiah, divided into two categories: variable rate and fixed rate. Variable rate itself has a type beneath it called variable rate, while fixed rate has more types beneath it such as fixed rate regular and zero coupon regular. ORI is the type of bond most traded in the secondary market and is a favorite among investors.
Types of Government Debt Securities or Government Bonds
If you intend to buy bonds issued by the government, there are now many applications that provide bond buying and selling services. Among the types of bonds issued by the government, the following are types or bond products in the secondary market that you may own.
Fixed Rate Bonds
Fixed rate bonds are debt securities issued by the Indonesian Government in Rupiah currency. For every investor who deposits their funds in fixed rate bonds, the government will repay the principal value plus interest using coupons until the maturity date that has been agreed upon by both parties (debtor and investor).
The coupon amount for fixed rate bonds will depend on the length of the maturity determined by the government, with a minimum purchase starting from Rp1 million, and coupon payments will be made every 6 months plus a 10% tax deduction.
The reason why fixed rate bonds are one of the most sought-after types of government bonds is because of their tradable nature in the secondary market, so investors including you have the potential to obtain capital gains by reselling at a higher price compared to the principal value when you bought it.
Retail Government Bonds (ORI)
Besides fixed rate bonds, there is also a type called Retail Government Bonds, more popularly known as ORI. ORI are state debt securities or state securities offered individually to Indonesian citizens or individuals that can be traded in both the primary and secondary markets.
Similar to fixed rate bonds, ORI also has fixed bond coupons, but coupon payments are made every month with a minimum purchase of Rp1 million up to Rp5 billion.
Retail Sukuk
Retail sukuk are sharia securities issued by the government with sales regulated by the state. Retail sukuk usually already have sales agents so that people can buy these retail sukuk.
Retail sukuk sales agents are usually Sharia Banks, Conventional Banks, and securities companies registered on the Indonesia Stock Exchange that are experienced in selling investment products in the Islamic financial market.
As for the benefits of buying retail sukuk, they are basically similar to FR and ORI, only differing in sales principles.
Corporate or Company Bonds
Besides government bonds, there are also types of corporate bonds you can buy. Corporate bonds are types of debt securities issued by corporations or companies, whether state-owned enterprises (BUMN) or private companies in general. This type of corporate bond has higher risk compared to government bonds because this corresponds to the condition of the company, unlike government bonds which are 100% guaranteed by the state.
However, referring to the term high risk high return, corporate bonds have higher risk and of course higher returns as well when compared to government bond interest rates and deposit interest rates.
Therefore, if you decide to invest in corporate bonds, it is advisable to study the company's profile to prevent default in the future.
Municipal Bonds
Municipal bonds are debt securities issued by local governments with the aim of helping development and the economy in that region. The issuance of these municipal bonds is guaranteed by applicable law.
Benefits of Bond Investment
By investing either in the capital market or bonds, investors certainly expect attractive returns to provide passive income. Speaking of bond investment, the following are the benefits if you buy bonds and their impact on the funds you deposit.
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Receiving Regular Interest Payments
When you decide to buy bonds, you will receive benefits in the form of repayment of the principal value plus its interest, which you will receive regularly. For example, with FR bonds, you will receive benefits every 6 months, and with ORI bonds you will receive benefits every month.
Another interesting thing is that the interest rates offered by bonds tend to be higher compared to Bank Indonesia interest rates, savings interest rates, and deposit interest rates with relatively low risk.
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Potential to Obtain Capital Gains
Besides expecting high returns, owning bonds also makes you potentially able to obtain capital gains or the difference in selling price. Therefore, it is not surprising if bonds become one of the investment instruments with quite many enthusiasts among investors.
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Having Relatively Low Risk
Usually investment instruments that have high returns are also high risk, but with bond investment instruments, the default risk is relatively lower and safer, making it very suitable for you who are investors with a conservative risk profile, and bond investment is suitable for long-term investment.
Disadvantages of Bond Investment
Besides having benefits in terms of returns, of course as an investment instrument, bonds still have several disadvantages, including:
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Potential for Capital Loss
Like investment in general, bond investment also has the potential for capital loss, especially when you sell the bonds before the maturity date. It is advisable for you to continue monitoring the movement of the bond value you purchased before making purchase or sale transactions.
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Fluctuating Interest Rate Levels
The level of interest rate returns obtained from bond investment depends heavily on interest rate conditions in the financial market and capital market, which are very vulnerable to being affected by several factors such as social, economic, and political factors of a country.
Grow Your Assets with BTN Prioritas
Investing is indeed one of the most popular ways to grow your assets. With investment, you automatically have the potential to obtain capital gains from the purchase price of an investment instrument. However, investment requires special skills to prevent risks arising from the investment itself. BTN Prioritas is a personal banking product from Bank BTN that provides exclusive and special services for you, our valued customers.
To answer your needs for investment products, BTN Prioritas has bond investment product services consisting of two types: secondary market and primary market. For the secondary market type itself, you can buy various bonds such as FR (fixed rate) bonds, INDOIS, and INDON. Meanwhile, for the primary market type, you have several bond options such as SBR, ORI, SR, and ST.
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