Bonds is representing debt instruments, in which the investor lends money to a company or government entity which is required to repay the investor the loan amount with accrued interest.
Dubai Financial Market along with Nasdaq Dubai offers a collection of bonds including those bonds that are listed by equity issuers, government bodies as well as institutions. Dubai Financial Market and Nasdaq Dubai listed bonds are tradable bonds available on-exchange.
Basically, a bond is a debt instrument that is sold by companies or governments where the issuer of the bond accepts to pay annual or semi-annual interest that is known as a coupon. It is set in the contract of issue and written on the bond itself. The issuer also recognizes its obligation to the person or entity who possesses the bond through the face value stated on the bond itself, and accepts to pay back the bonds within the agreed time limit up on that is known as the ‘maturity date’.
UAE Government allows everyone to buy or sell bonds from their exchange centers. The stock market is unpredictable and it is suggested to research properly before purchasing any listed securities. It is important to have some local information before buying or selling any shares. Continuous tracking and keeping yourselves reorganized helps in attainment of profits in the securities market.
There are basically three types of bonds available in UAE:
These are the types of bonds that any Company issues and list themselves in the Securities Market.
These are the type of Bonds that the government issues and are listed in the market for the public to invest.
These types of bonds are issued by the Local government, state, city, and local community for the purpose of investment from the public.
One can make money from bonds in UAE using the following two ways:
Bond issuers also make interest payments to bondholders twice a year. Different from stocks, bonds have a fixed rate of interest.
One can also make money when there is growth in bond value. When there is a drop in interest rate and new bonds are issued at lower rate of interest, the value of your bond which was issued at a higher interest rate increases. When the stock market is down, most of the people turn to bonds, directing their prices up.
The best bond to invest in is the Corporate Bonds. You can lend money to companies and can mostly enjoy higher yields than you get on any other types of bonds available in UAE. For most of the investors who are in middle to higher tax slabs, it is better for them to purchase corporate bonds.
To recognize the careful consideration that bond investors pay to interest rates, we require to take a step back and deliberate the substantial role that interest rates plays in the global economy. Interest rates are usually set by central bank of UAE which influences the cost of borrowing as well as the return on savings.
Representatives at central banks use these interest rates to impact inflation and economic growth.
At the present, let us consider how interest rates affect bonds. The yield of a bond is mainly composed of two parts that is interest rate and credit spread. While credit spread replicates characteristic risks associated with individual issuers. The interest rate is the base rate for all bonds denominated in a specific currency and recompense investors for their starting economic risks.
Henceforth if the market presumes that the interest rates is going to rise then bond yields also rises which Forces the bond prices to fall. The reverse is also applicable. This reverse relationship between interest rates or yields and prices is the reason why fixed income assortment managers take great care to understand the perspective of the global economy and to gauge the upcoming path of interest rates.
Investing in bonds through a managed fund offers a range of benefits. The benefits of a bond fund are as follows-
Few individual investors having the requisite skill to examine the bonds or the time to observe news as well as developments that can determine the performance of the bonds. Always invest in a managed bond fund that provides you with the access to bonds that have been systematically researched and all are done in just one transaction.
Managed bonds funds are usually run by knowledgeable and skilled portfolio managers, frequently with the support of devoted teams of market analyst and experts in industry sectors. These teams often accept detailed research, thoroughly analyzing the risks and prospects of each bond to regulate.
Managing bonds right away can be time-consuming and can also include a fair amount of management. Every transaction produces a declaration, so multiple investments can also generate a large amount of paperwork. With a managed bond fund, you only have one unit price so it is much easier to track the value of your security.
If you invest in bonds directly, you are solely responsible for investigating the risks facing the issuer of the bond that will be very time-consuming. You have to decide when is the best time to invest and also monitor the performance of the bond. You also need to be aware of the company’s balance sheet and its credit rating, among other factors if you want to issue corporate bonds. The question also arises whether you need to hold the bond until its maturity or sell it to the secondary market. To make this factors more easily, contact us for management of corporate bonds.
Attention on risk is another consideration. Let us assume that you dedicate all your portfolio’s fixed income distribution to two or three separate bonds. If one of these issuers defaults on the debt obligations then the performance impact on your portfolio can be severe.
To reduce this outcome, you will need to spread possibility by investing in a huge range of bonds. That means offering more time to research the individual bonds and their own market environments. And then there the issue of access arises.
Bonds are accepted in two ways. In the primary market bonds are directly issued from the issuer or from the secondary market. Big or listed companies tend to issue bonds to professional investors only who commits to buy a significant amount of their debt.
If you select a bond fund, you’re investing in a professionally managed selection of bonds that are designated on your behalf. Bond fund managers don’t generally hold the bonds until maturity, as an alternative they trade them to make money for their investors. Our expert team at Dhanguard will provide you with the precise information as your bond fund management consultant.