Definition, Types, and Methods of Calculating Bonds

Currently, investment is one of the things that is quite popular in some circles. Even digital investment also widely chosen because it is more practical. Before the advent of investment mutual funds or kripto, maybe you are no stranger to investingi stock, emas, or also bonds.

However, among these contemporary investments, do you already know what bond or securities investments are?

If you don't know him, don't worry, because DailySocial will summarize it for you. Come on, see the following explanation!

What Are Bonds?

Bonds are debt securities that are generally issued by bond issuers, namely the government or certain companies to bondholders. Usually bonds are also referred to as Securities (SBN).

In Law No. 24 of 2022, bonds or state debt securities are securities in the form of debt acknowledgments in rupiah and foreign currencies which are guaranteed payment of interest and principal by the Republic of Indonesia in accordance with their validity period.

Bonds were chosen as a form of investment because they are considered more promising and safer. Bond prices and bond interest are also adjusted to the bond issuing company, generally the bond price is around 1 million rupiah.

Types of Bonds

There are many types of bonds or examples of bonds that you need to know. The following types of bonds exist in Indonesia:

1. Government Bonds

As the name implies, this type of bond is a bond issued by the Indonesian government. Generally, this type of bond is issued once a year under the name ORI or Retail State Bonds.

2. Corporate Bonds

In contrast to government bonds, the types of corporate bonds are debt securities issued by state companies (BUMN) or private companies.

3. Municipal Bonds

These bonds are usually issued by local governments with the aim of assisting local governments in carrying out development,

4. Sharia Bonds

Sharia bonds are debt securities issued to provide yields such as rent which are calculated according to Islamic principles and do not generate usury. The proceeds from Islamic bonds will be paid periodically according to the agreed period.

5. Conventional Bonds

Conventional bonds are a type of bond issued by bond issuers to obtain loans that can be used for additional capital, by providing interest yields to bondholders.

6. Retail Bonds

Retail bonds are securities that have a small nominal value or value, under 1 million rupiah.

7. Coupon Bonds

Coupon bonds are a type of securities that pay interest to bondholders on a regular basis. Of course, this bond has a certain nominal that has been agreed upon by both parties.

8. Fixed Coupon Bonds

These bonds are also known as fixed coupon bonds which have a bond offering with a fixed interest rate until the maturity of the note expires or arrives.

9. Zero Coupon Bonds

You will not get interest, but you will benefit from the difference between the discounted selling price and the initial price when the bonds are sold.

10. Floating Coupon Bonds

Floating coupon bonds or floating coupon bonds are bonds that change in value depending on the money market index. This type of coupon also has a minimum limit in it, later the first coupon will be determined as the minimum coupon amount until the expiration date.

How to Calculate Bond Yield

Before buying bonds, you should consider the exact value of the return (yield). There are various formulas that can be used to calculate bond yields, including:

• Nominal Yields

nominal yield is to calculate the interest rate that shows return income to be obtained from investors.

Formula Nominal Yields = (Coupon/Nominal) x 100%

• Current Yields

Current yields will be calculated based on the number of coupons received during the 1 year the bonds are received.

Formula Current Yields = Annual Interest Income : Bond Market Price

• Yield to Maturity

To calculate the rate of return obtained by bondholders, if you hold bonds until maturity, you can use the formula yield to maturity (YTM).

YTM formula = (C+((FP):n)0 : ((F+P):2)

Information:

C = Payment of interest on debt securities every month

F = nominal value of debt securities

P = Price of debt securities paid to buy debt securities

n = the number of times the interest must be paid during the maturity of the note.

To invest in bonds or debt securities, you can choose according to the type and also your current financial condition. Every investment also has advantages and risks that must be borne. So, think carefully, yes!