What is a bond, what is it used for, how to buy it?

As economic conditions are becoming increasingly unstable all over the world, even people who have never understood these things before have started to enter the world of investment. One of the countless investment options you will encounter in this world is bonds. Bonds may seem a little more complicated than other forms of investment, but in fact, in its most basic form, it is lending money and getting this debt back with interest.

Bonds, also known as promissory notes, can be issued by both the government and private companies. People who buy bonds are creditors of the institution that issues the bonds. A lump sum of interest can be received from bonds at certain intervals or at the end of maturity. While all investment conditions may vary depending on the company issuing the bond, you may also encounter different conditions for different bond types. Before moving on to frequently asked questions about bonds, let us remind you; None of what is said on the subject is investment advice.

Let’s start by making a general definition for those who don’t know; What is a bond?

The bond is issued in accordance with the rules regulated within the framework of the Turkish Commercial Code. It is a debt security issued by the state or private companies. A bond is a type of agreement between the issuing company and the investor. The duration of the bond may vary, provided that it is at least one year. Likewise, interest payment times will also vary.

What exactly do bonds do?

Let’s say you have a company and you need a certain capital in the short term. You can issue bonds if you meet the conditions specified in the law. When the investor buys this bond from you, he pays you a certain amount of money. By issuing many bonds like this, you reach the required capital in a short time.

So why does the investor buy this bond? The principal paid for bonds is definitely refunded, except in special cases. In addition to the principal, the investor either in the interim period or at the end of maturity, receives interest at a rate determined at the time of purchase. In other words, the bond issuer gets the money he needs in the short term, and the bond buyer earns interest on the money he pays.

So how to buy bonds?

Bonds issued by the state or private companies can be purchased through almost all banks. At the same time There are many investment companies where you can purchase bonds and similar transactions. Since there may be changes in the bond purchasing conditions of each bank and company, it is best to get information by visiting the official website of the relevant institution or by calling.

Terms you need to know during bond transactions:

• The value written on the bond and payable at maturity is the nominal value.
• The date on which the nominal value will be paid is maturity.
• The interest rate calculated with the nominal value of the bond is the coupon rate.
• The date on which the bond issuer will pay the interest is the coupon date.
• The price at which the bond is first issued is the issue price.

There are different types of bonds you will come across in the investment world:

• Government securities
• special bonds
• at-the-money bonds
• bearer bonds
• Convertible bonds
• interest bearing bonds
• Secured and unsecured bonds
• indexed bonds
• Bonus bonds

Government securities:

Bonds issued by the government are called government bonds or treasury bonds. It is the bond type with the lowest risk. Its return is much lower than other types of bonds, but since it is guaranteed by the state, it is reliable and therefore it is widely preferred.

Private bonds:

Bonds issued by private banks or joint-stock companies are called private bonds. Returns are much higher than government bonds but its reliability may be questionable. The more reliable the company that issues the bond is, the more reliable the bond is considered. Still, there is risk.

At-the-money bonds:

Each bond has a certain value on it. If the bond If it was put on the market at the value written on it This is called at-the-money bond. If the bond is released to the market at a value lower than the value written on it, it is called a premium bond.

Bearer bonds:

Some bonds are issued with a specific name, while others are issued without a name. If there is a specific name on the bond This is called a registered bond, if there is no specific name on the bond, it is called a bearer bond. Only the person named in that name can endorse registered bonds. Bearer bonds are endorsed by whoever holds them.

Bonds convertible into cash:

These bonds, also known as bonds that are easy to convert into cash, It is possible to convert it into cash without waiting for the maturity date. These bonds also include the right to exercise interest until the specified date.

Interest bearing bonds:

Interest-bearing bonds are divided into two: fixed interest and variable interest. If bond; If it gives interest according to 3-month, 6-month or 1-year maturity periods It is a fixed interest bond. If the bond pays interest in a different time period according to the agreement between the buyer and seller, it is called a variable interest bond.

Secured and unsecured bonds:

If the bond is issued by the issuer, the principal or interest rates are has guaranteed that it will be paid in some way It is called secured or secured bond. If there is no such security, that bond is called an unsecured or unsecured bond.

Indexed bonds:

The principal paid for the purchase of bonds indexed to the increase rate of investment instruments such as gold and foreign currency Bonds paid to investors are called indexed bonds. The purpose of indexed bonds is to protect the investor against interest. Payment is made by calculating the changes during the maturity according to the indexed investment instrument.

Bonus bonds:

Bonus bonds It is not used in our country But let’s define it briefly anyway. Bonds issued to make more sales or to ensure continuity of income are called bonus bonds.

One of the most common investment instruments What is a bond, what is its use, how to buy it, what are its types? We answered frequently asked questions such as: Let us remind you again that none of what we say is investment advice. You can share your thoughts on the subject in the comments.