How to buy bonds of a state loan to an individual – types of securities and yield

The content of the article

• What are government bonds
• Federal loan bonds
• Government short-term couponless bonds
• Types of government securities
• Who is the issuer
• Yield of government bonds of the Russian Federation
• Is it worth buying federal loan bonds
• Maturity
• Sale and purchase of bonds
• How to buy federal loan bonds to an individual
• Where to buy bonds
• How much are government bonds
• How much can you earn on bonds

The stable financial condition of the country is the key to the well-being of the population, because the government seeks to control it, including through the issuance of government bonds. Government loan bonds (OFZ) are a means to cover the budget deficit through the issuance of federal securities. Roughly speaking, the state takes money from citizens at a certain percentage. Over the past few years, budget revenues have declined (mainly due to a sharp drop in oil prices) and the issue of government loans has again become relevant.

What are government bonds

Government loan bonds are a collateral instrument that the government issues to raise public funds. An individual who acquired OFZ will be an investor in relation to the country. The state gives guarantees on the return of debt with accrual of interest. The currency of the securities of the Russian Federation is the Russian ruble. At the moment, a government loan bond is considered a way to invest low-risk funds. There are municipal government papers issued by local city authorities.

Federal loan bonds

The Ministry of Finance of Russia again issues federal loan bonds, that is, securities, the placement of which will allow to replenish the budget. From April 26, 2019, the sale of a federal loan bond for individuals begins. The maximum validity period of OFZ is three years. The total cost will be 15 billion rubles., One government bond will cost 1,000 rubles. The minimum purchase quantity is 30 pcs., The maximum is 15,000 pcs..

Early repayment is possible, but unprofitable. Calculation is provided every six months. The size of the annual income is from 7.5 to 10.5%. Government loan bonds are issued for a specified period, then the buyer receives coupons (interest payments). The state announces the size and date of payment, which is convenient for private investors who are not too sophisticated in investing.

Government short-term couponless bonds

The abbreviation of GKOs, notorious for many, is state short-term zero-coupon bonds; they were issued in 1993 and worked on our market for five years with varying success. As a result, their release led to disastrous consequences. These are registered securities issued by the state. The income was derived from the difference between the purchase and sale prices of T-bills. The repayment period is from three to six months. Foreign citizens had the right to acquire T-bills, which brought T-bills to the international level and led to a massive outflow of Russian capital abroad.

By 1998, the profits from T-bills were so high that the state began to use it to finance the budget deficit. Everything went fine until in August 17, 1998 it turned out that there was simply nothing to pay profit and the Ministry of Finance defaulted on all T-bills, which depreciated by 70-80%. This had disastrous consequences for the country’s economy, including the collapse of the national currency, the crisis affected all citizens of Russia. All subsequent T-bills were issued (until 2006) in order to pay off debts on previous loans.

Types of government securities

Government securities are an important part of the stock market in any country. So you can regulate temporarily available funds of financial institutions and individuals. Types of government securities:

• non-cash and cash;
• uncertificated and documentary;
• profitable and guaranteed;
• non-market and market;
• bearer and registered.

GS functions differ:

• government long-term coupon obligations;
• government short-term non-coupon obligations;
• savings loan bonds;
• domestic currency loan bonds;
• state treasury bills;

Who is the issuer

An issuer is an organization that undertakes the issue and provision of securities. In the case of a state loan, the state is used in this role. It must ensure the profitability of its securities and guarantee the rights of their holders to receive income from the return of funds at the end of the state loan. This is a condition for the reliability of government loan bonds. Now the situation in the country is much more stable than in the 90s, so investments in government loans can be reliable..

Yield of government bonds of the Russian Federation

The state announced the return on OFZs issued in 2019 in the amount of 8.5% per annum. Compare – profit from deposits in the largest banks in Russia rarely rises above 7.5-8%. It can be considered the acquisition of government securities quite a profitable event. On the other hand, banks charge a fee in the amount of 05 to 1.5%, depending on the number of government loans acquired. So, if you repay them after three years, then your income minus the commission will be 9.02%.

Is it worth buying federal loan bonds

They say correctly: “The state cannot be fooled, rather it is you.” The Russians already have the sad experience of how borrowing money from the population through loans was first voluntarily forced during the Soviet era or frankly fraudulent, as in the case of T-bills. It is logical that now the attitude towards the state loan is wary. The Finance Ministry assures: now that the external debts of the USSR have already been repaid, and there is a budget deficit, but it’s not critical, it’s time to invest available funds in securities, as an option.

The situation with government securities of past years is slightly different. In terms of risks, these investments differ little from other investments on the stock exchange. Moreover, you cannot buy old OFZs on your own, it is better to use the services of intermediaries – traders, mutual investment funds. This will require additional costs, but will reduce the risk of primary investment.

Maturity

The system of state loans does not provide penalties for early repayment of money, a guarantee is given for 100% repayment of the loan, and you can return any amount. If you want to receive income from interest – do not expect to withdraw money earlier than in a year. Otherwise, the owner of OFZ pays a fee to the bank twice (with early repayment, a fee is also charged). But in a year the value of your OFZ will increase by 6-8.5%, in three – by 10.5 percent. The price of bonds is constantly changing depending on the economic situation on the Russian stock exchange.

Sale and purchase of bonds

Individuals can purchase OFZ-17 from April 26, 2019 to October 25, 2019. They will be sold in the branches of Sberbank and VTB 24. The 2019 state loan cannot be bought on the exchange or through intermediaries. This is to prevent speculation. OFZ-N (popular) cannot be accepted as collateral for lending, donation operations cannot be performed with them. The only way to transfer securities to another person is by inheritance.

How to buy federal loan bonds to an individual

The procedure for buying federal loan bonds in 2019 is simple: you come to a branch of Sberbank or VTB (do not forget to first find out if OFZs are sold there). Conclude a contract and purchase. Another option is to buy OFZ online through your personal account on the banks’ websites. A government loan bond is the property of the buyer and cannot be donated or sold..

Where to buy bonds

It is assumed that the sale of federal loan bonds will take place in large banks of the Russian Federation – Sberbank and VTB24. Not every bank branch provides this service; OFZs will be sold in large branches offering the Sberbank-Premier service. Securities from the state of past years are purchased on the exchange, in person or through brokerage houses or mutual investment funds with a small commission.

How much are government bonds

The face value of one bond of a state loan is 1 thousand rubles. This applies to both old government securities and new ones to be issued in 2019. Moreover, a new limitation has been introduced – the minimum batch of OFZ is 30,000 rubles, the maximum is 15,000,000 rubles. Bonds issued before 2019 also have a face value of one thousand rubles, but in unlimited quantities.

How much can you earn on bonds

The new OFZ-2017 has a fixed income. OFZ-17 income for a period of three years is obtained in the region of 9% per annum, taking into account the payment of a commission. Other government securities promise higher profits – long-term bonds (10-15 years) up to 14-16% per annum, short-term bonds for one or two years – up to 11% per annum. There are higher percentages, but as you know, the higher the profit, the greater the risk of not getting it. Management of purchased government loans is carried out either through intermediaries, or independently, subject to the creation of an electronic digital signature and your own personal account on the exchange.