Jakarta (MidLand) – For those who invest in bonds, it is important to understand when it is possible to withdraw the principal and interest (coupon).
The principal funds of the bond can be withdrawn once the maturity period of the bond is reached, which depends on the duration of the bond.
At maturity, the bond issuer will return the capital to the investor. Bonds have variable maturities, generally ORI Retail, SBN and Sukuk government bonds have a maturity of 1-5 years, so they are suitable for short and medium term investments.
Meanwhile, FR (fixed rate) bonds are medium to long-term investment instruments with maturities ranging from 5 to 30 years. Once the maturity period is reached, the principal funds will be returned to the investor along with the final coupon payment.
Furthermore, the interest or coupon of the bond is paid periodically, usually every six months or once a year, from the date of issuance until maturity and depends on the type of bond. This coupon acts as a form of interest paid to the bondholder during his tenure.
However, if you want to sell a bond before maturity, you can do so on the secondary market. In this case, you can also earn capital gain when selling bonds to general investors. Capital gain is the profit that can be made from the difference between the selling price minus the purchase price of a bond. When you sell a bond before maturity, you can also suffer potential losses if you sell the bond when the market price of the bond falls.
While bonds offer many benefits, that doesn’t mean that this investment is 100% risk-free. Here are some risks to be aware of:
1. Risk of default
Although bonds are relatively safe, there is always the possibility of default risk. This occurs when the party issuing the bond is unable to make interest payments on time and may not even be able to repay the principal when it matures. This condition usually occurs when the bond issuer is facing significant financial problems.
2. Influenced by external conditions
Bond investments, especially those that use variable interest (variable rates), can be strongly influenced by external factors such as the economic or political conditions of a country. If the economic or political situation is unstable, the interest income received by investors may decrease or even be non-existent. This can certainly affect the potential profits from bond investments.
Read also: How to invest in bonds? This is the explanation
Read also: Knowing government bonds, their meaning and how to buy them
Read also: How to invest in fixed income through a bank: deposits, bonds and more
Reporter: Alllisa Luthfia
Publisher: Alviansyah Pasaribu
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