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Monday, March 19, 2018

Deposits to lose attractiveness

Bank Deposit losing its reputation as a “safe haven” for savings. Reviews of licenses from major banks and obscure the government’s plans to use depositors ‘ funds to rescue distressed credit institutions force people to think about alternative ways of investing. One of those ways — bonds. “EV” figured out how to capitalize on this is not very clear for most people the tool.

photo: Alexander Astafyev

Investors thought

In January of this year, according to the summary of the 101st the form of Russian banks, the volume of private deposits in the total Deposit portfolio of natural persons has decreased. The outflow does not look critical — as we see in the range of minus 2%. And explanations of this negative financial officials and experts give quite reasonable: they say that January is the holiday season, people travelling spend a lot of money. And since statistics on deposits takes into account not only term deposits, but account balances debit cards, then the outflow is predictable and seasonal in nature.

However, according to the financiers, it is already possible to speak about changes in the psychology of investors. “We see a fairly obvious trend — the decline of public confidence in Bank deposits as the most reliable savings instruments. I can judge the mood of even conservative wealthy people from the personal circle of communication that used all other methods of investment deposits with credit institutions: they are now considering alternative financial instruments”, — says CEO of UK Peramo Olga Meshcheryakova. In her opinion, the most clear alternative with comparable yield — bonds from first-class issuers.

“If we are talking about highly reliable bonds, this is a pretty conservative tool, not so much subject to change in price, unlike others – for example, shares or derivatives, continued — head of Internet trading “OTKRITIE Broker Alexander Dubrov. Meanwhile, the analyst of the company “Alfa Capital” Andrew Schenk generally believed assertion that the Deposit is a risk-free investment, a myth: “It is not the opening of the Deposit in excess of 1.4 million rubles or foreign currency Deposit, the investor assumes the risk of the solvency of the Bank, that, in fact, equivalent to the credit risk of the Bank as Issuer of the bonds”.

Educational program for “dummies”

But before you buy bonds, you need to understand what it is. A bond is a security which allows the Issuer (i.e. company, state or municipality) to raise loans for the money. Therefore, the placement of the bonds by the Issuer is called the bond loan.

The scheme is as follows: the Issuer, for example, Corporation X, places on the market a certain number of its bonds with a certain face value (say, a thousand rubles). Anyone can buy one or several such bonds, i.e. lend money to Corporation X, at least one thousand rubles. Or a hundred thousand — if you buy a hundred thousand bonds. The Issuer borrows money not just because of any of the borrower, he should pay the lender (buyer of bond) the Commission for the use of borrowed funds. In the Bank such fee is called an interest rate, in the case of loan bond — coupon rate. The bonds were placed for a certain period, on the last day of this period (the maturity date) the Issuer is calculated with holders of its bonds.

Interest income can be paid regularly or one-time (quarterly, semi-annually, at maturity), the “body” of debt (nominal value of the acquired securities, excluding coupon income) — also, it depends on the conditions of a particular bond issue.

During the period of placement of bonds, these securities are traded on the market — that is, they can be bought not only in the day when the Issuer conducts a placing securities on the market, but in any other until the maturity date. And any other day the market value of the bond may be above or below face value — after all, paper buy and sell, so its price varies depending on volume of sales and purchases. “If the investor plans to hold the bond to maturity, you will receive all coupon payments plus the amount of discount if the purchase price was less than 100% of face value, or with less premium if the investor has bought above par, for example 102%”, — says the expert of Department of development of investment products Instant invest broker” Andrei Turcanu. But if you sell the bond early, there is a risk of loss if at the time of sale paper is trading well below the price at which an investor bought it.

We should not forget about the associated costs, which are not always obvious. “When investing in bonds it is important to understand that the profits received by them, you will have to pay a tax of 13%. Now almost all brokers, as tax agents themselves pay for the client’s taxes,” — says the Deputy Director of analytical Department IK “Okay Broker” Sergey Alin. This tax does not apply to government bonds, or Federal loan bonds (OFZ). And, by the way, with small amounts of investments payment of income tax can be avoided by using the mechanism of individual investment accounts (IMS), which “EV” already told in detail.

And, of course, it is important to remember about the main risk. Investments in bonds are not covered under warranty ASV unlike Bank deposits to 1.4 million rubles”, — the analyst of Agency “Rus-Rating” Alexey Marakov. If the bond Issuer goes bankrupt and cannot pay off with holders of securities, the losses they were never compensated. Therefore, below we will tell, from whom issuers can be trusted.

Memo to investors

The algorithm of action for the novice investor in the case of simple bonds. Need to open a brokerage or investmet broker or a Bank offering this service. Of documents need passport and INN. Then you must connect a terminal for online trading on the Moscow stock exchange and to have the funds for brokerage account: cash using cash or wire transfer. Then you should apply for the bonds. This can be done via the Internet or by telephone, giving the broker the voice instructions.

The Director of the methodical Department of the NRA Maxim Vasin recalls that investing in bonds can also through the management company, investing in bond mutual funds or directly through the trust deed. The expert pays attention that individual strategies and investing through the UK are generally accessible to investors with large sums of money — 1 million rubles. and more.

Well, the most important question — what to buy? “The indicator of the company’s reliability — low bond yields. The higher the yield, the less credible the company from borrowers — bad reputation or business problems forced the leaders of the company to borrow at high interest rates”, — the legal adviser of the company “Basalt” Dmitry Volkov.

Sometimes, however, a high percentage of offer the company with good financial indicators, but an unknown or unfamiliar brand to the market business model. In such transactions confidently feeling only for experienced investors. But for a beginner the best option is Federal loan bonds (OFZ) corporate bonds or “first tier” — the most reliable Russian companies. “A default on such securities may occur only when Russia defaulted in the case of OFZ and bankruptcy of state-owned corporations. The probability of default of our country at the current low level of public debt is practically zero, the same can be said about the issuers of the first echelon. Moreover, if you remember the default of Russia in 1998, when the affected holders of t-bills, we will see that even in such a difficult time for the country the same “Gazprom” paid on its bonds,” says Meshcheryakov.

With regard to profitability, the government bonds and the rates on Bank deposits in the largest retail banks bring investors about the same “fat”. “Individuals makes more sense to invest in bonds of companies. Reliable enough for issuers to get the rate of 12,is 12.5% per annum,” says Alin, Recalling that the “long” bond (that is, the longer the period of her treatment), the greater the loss, the paper holder can potentially obtain. Therefore, in the current difficult market situation it is better to buy bonds for a period of not more than 1-3 years.

Key terms

*The nominal value of bonds (face value). Each bond has a nominal value. The coupon size is determined in percentage from nominal value. Most of the bonds traded on Russian stock exchanges, have a nominal value of 1000 rubles.

*Market price. In addition to the nominal value of each bond is its market price. In contrast to the nominal market price is constantly changing depending on current market conditions, interest rates, supply and demand of bonds on the stock exchange. The market price determined on the stock exchange in the bidding process. The market price is not quoted in rubles and in percent of the nominal value of the bond. And can be as above (for example, 101,2%) and below par (by 98.7%). This price is called the clean price of the bond.

*Coupon bonds is the interest payment on the bonds. Size and date of coupon payments are usually known to the investor beforehand. The coupon size is determined in percentage from nominal value.

*Amortization — a payment bond debt through regular payments. To amortization the borrower uses in order not to seek at maturity a significant amount of money, for example, the nominal value of the bonds.

*Accrual of income and the refund of the face value of the bond is quite simple — without the participation of the holder of the bond. At maturity the bond will disappear from your portfolio, but after 3-5 days its par value and accumulated income will credit your exchange Deposit, where the money you can safely withdraw to a Bank account or buy them a new quantity of bonds.

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