Investing in a bond fund when the net value of the fund is low means investing in a debt-based fund when the bond shows a trend of interest rate reduction. At this time, the unit net value of the investment fund is relatively low, and when the interest rate of the national debt is greatly reduced, it will often usher in a bond bull market, from which investors can earn a certain income difference.
I. Definition of bonds
Bonds are securities issued by debtors such as governments, enterprises and banks in accordance with legal procedures in order to raise funds and promise creditors to repay the principal and interest on a specified date.
Bond/debenture is a kind of financial contract, which is a debt certificate issued to investors when the government, financial institutions and industrial and commercial enterprises directly borrow money from the society and promise to pay interest at a certain interest rate and repay the principal according to the agreed terms. The essence of a bond is a certificate of debt, which has legal effect. There is a creditor-debtor relationship between bond buyers or investors and issuers, bond issuers are debtors and investors (bond buyers) are creditors [2].
Bond is a valuable security. Because the interest of bonds is usually determined in advance, bonds are a kind of fixed-interest securities. In countries and regions with developed financial markets, bonds can be listed and circulated.
2. What are the advantages and disadvantages of bonds?
superiority
(1) Low capital cost
The interest of bonds can be paid before tax, which has the effect of tax deduction; In addition, the investment risk of bond investors is lower than that of stock investors, so their required rate of return is also lower. Therefore, the capital cost of corporate bonds is lower than that of common stocks.
(2) It has financial leverage.
Bond interest is a fixed fee, and bondholders can't participate in the distribution of the company's net profit except interest, so they have financial leverage, and will increase shareholders' income at a faster rate when the income before interest and tax increases.
(3) The raised funds are long-term funds.
The funds raised by issuing bonds are generally long-term funds, which can be used by enterprises for more than 1 year, providing strong financial support for enterprises to arrange investment projects.
(4) Bond financing has a wide range and a large amount.
Bond financing has a wide range of objects, which can be raised from various banks or non-bank financial institutions, as well as other legal entities and individuals. Therefore, financing is relatively easy and a large amount of funds can be raised.
disadvantaged
(1) High financial risk
Bonds have fixed maturities and fixed interest payments. When the enterprise's capital turnover is difficult, it is easy for the enterprise to fall into financial difficulties and even go bankrupt and liquidate. Therefore, when issuing bonds to raise funds, financing enterprises must consider the stability and growth of the future income of investment projects raised by bond financing.
(2) There are many restrictive clauses and lack of flexibility in the use of funds.
Because creditors have no right to participate in enterprise management, bond contracts usually contain various restrictive clauses in order to ensure the security of creditors' claims. These restrictive clauses will affect the flexibility of enterprise capital use.