Especially in these economically challenging times, bonds are a welcome instrument to offer more investment options to diversify your portfolio. In this blog article, we are writing about the characteristics of bonds as well as what they can offer investors.
After launching the second share issue for Austrian investors in September, we are now looking forward to launch our first cross-border Bond Rounds.
The characteristics of bonds
Many large companies issue bonds in order to raise long-term debt capital. In a bond investment, a previously fixed percentage (called a coupon) is paid out to the investors each year, just as with subordinated (i.e., paid after more senior claims have been paid) loans. Bonds issued by Invesdor generally have a term of 4 to 10 years.
Bonds are generally, like unsecured loans, senior debt. However, if the bond-issuing company becomes insolvent, losses are to be expected. For more information on risks related to investing, please see our Risk Warning page.
What can bonds offer investors?
Bonds are securities, which means they can be sold at any time. This also applies to bonds that are not listed on a stock exchange. Bonds have - similar to shares - a price that is determined by supply and demand. Investors have the possibility to make a profit on selling a bond, if they can sell at a price above that of the purchase price.
Bonds are usually issued by larger and stable companies, which usually have good credit ratings , sustainable business outlook and growth potential. As mentioned above bonds are generally of equal rank as (unsecured) loans and therefore are considered to have a lower risk of default than shares or mezzanine capital. Because of these factors, bonds are seen by some investors as a relatively safe form of investment compared to other instruments like shares.
Furthermore, unlike shares, bonds yield fixed interest rates over a longer period of time. For many professional investors, bonds are therefore also an instrument to "stabilise" their investment portfolio, which is often stock-intensive, and make it more stable.
On the other hand, the potential profit of a bond is capped by its coupon unless the bond price goes up. Whereas shares can potentially yield higher than expected for example in case of an exit or none at all for example in the case the company does not get profitable and/or does not exit.
How to invest in bonds?
In order to be able to invest in bonds on our digital platform, you can start by registering at www.invesdor.com. Further information on the investment process for bonds can be found on our bonds details page.
If you have any open questions or uncertainties about bonds, please also have a look at our FAQs section there.