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Obligation is a Debt Statement, Also Learn About the Types, Advantages, and Disadvantages

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Obligation is a Debt Statement, Also Learn About the Types, Advantages, and Disadvantages Illustration (Credit: Pixabay)

Kapanlagi.com - Talking about investment, bonds are one of the things that cannot be missed. Besides bonds, there are actually other investment products that you need to consider as options. Especially if you already have a job and a steady income, planning for long-term investment goals is something you should do.

Other investment products besides bonds are mutual funds, deposits, stocks, properties, and gold. Each product has its own advantages and disadvantages. Therefore, it is important for you to understand them first before making a choice.

Now, bonds are an investment product that will be further discussed in this article. Reading the review below will make you understand the definition, types, examples, advantages, and disadvantages of bonds. With that, you are ready to become someone who is knowledgeable about investments.

 

1. Definition of Bonds

Quoting information from the Financial Services Authority (OJK) website, bonds are long-term or medium-term debt instruments that can be traded. The content of bonds is an agreement from the issuer of the Security to pay compensation in the form of interest for a certain period and to repay the principal debt to the bond buyer based on a predetermined time.

In summary, the bond issuer can be understood as the debtor and the bondholder as the creditor. The background of issuing bonds is an effort to raise funds from the public that can be used as a source of financing. For entrepreneurs, bonds can be seen as a way to obtain fresh funds to keep the business running.

Meanwhile, the government sees bonds as a source of funding for a portion of the budget in the State Revenue and Expenditure Budget (APBN). Quoting information from the Ministry of Finance, Retail State Bonds (ORI) are one of the instruments of State Securities (SBN) offered to individuals or individual citizens of Indonesia through distribution partners in the primary market.

The government offers ORI with the ORI019 series as the 19th series as an investment alternative. Through ORI019, the government invites the public to participate in economic recovery and national development programs and to safeguard Indonesia's future post-Covid-19 pandemic.

 

2. Types of Bonds

If you plan to make an investment, it is better to first know the types. Based on information from OJK (Financial Services Authority), generally, there are government bonds, corporate bonds, and retail bonds. To determine the type of bond you choose, see the following detailed explanation.

1. Government Bonds As the name suggests, these bonds are in the form of State Debt Securities issued by the Government of Indonesia. Government bonds include bonds with fixed coupons (FR series - Fixed Rate), bonds with variable coupons (VR series - Variable Rate), and bonds with Sharia principles/Sukuk Negara.

2. Corporate Bonds These bonds are issued in the form of debt securities by Indonesian Corporations, both state-owned enterprises (BUMN) and other corporations. Similar to government bonds, corporate bonds are divided into bonds with fixed coupons, bonds with variable coupons, and bonds with Sharia principles. Some corporate bonds are rated and some are not rated.

3. Retail Bonds Retail bonds are issued by the Government and sold to individuals or individuals through agents appointed by the Government. These bonds are divided into Retail State Bonds (ORI) or Retail Sukuk.

 

3. Advantages and Disadvantages of Bonds

After understanding the definition and types of bonds, you also need to know the advantages and disadvantages as considerations.

Advantages of Bonds

1. You can benefit from coupons. Coupons can be fixed or floating/variable. However, there are also zero coupon bonds that do not have coupons. The yield as the bond's return depends on the bond's duration. The longer the duration, the greater the potential return.

2. Coupon and principal payments are guaranteed by Law No. 24 of 2002/Law No. 19 of 2008, making bond investments safe.

3. Ease of trading bonds in the secondary market. Additionally, the mechanism is regulated by the Indonesia Stock Exchange (IDX) or through off-exchange transactions.

4. Bond coupons or interest rates are typically higher than deposit interest rates.

Disadvantages of Bonds

1. When bond issuers are at risk of default, investors not only fail to make a profit but also may not recover the entire principal. However, this risk does not apply to government bonds protected by the law.

2. Bonds are susceptible to changes in the economy, interest rates, and unstable political conditions, which can impact the financial markets.

3. Selling bonds before maturity in the secondary market can result in losses for investors, as the purchase price is higher than the selling price.

That's an explanation about bonds that you need to know before deciding to invest. Obligations are one of the potential options, so consider it!

 

(kpl/gen/ans)

Disclaimer: This translation from Bahasa Indonesia to English has been generated by Artificial Intelligence.
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