Saturday, February 9, 2013, AM | Leave Comment
With bonds being a valuable investment that can help you earn extra cash, it is crucial that you invest some part of your income in bonds.
Of late, experts have been voicing the opinion that retail bonds – one of the funding options of a company – can provide the investors with a realistic and sustainable investment alternative to the conventional institutional bond and bank debt markets; with the chief differentiation between retail bonds and conventional bonds being that the former are specifically aimed at retail investors instead of institutional investors.
As such, you can seriously think of investing in retail bonds which are rapidly witnessing increasing success in developed countries, like the UK, largely because these bonds strategically facilitate private investors in gaining improved access to financial markets.
Retail bonds provide the security of a fixed income instrument:
Given the fact that the retail bond market was essentially launched with the objective of meeting the strong demand of private investors for increased access to fixed income, your decision of investing in retail bonds can give you an additional income option which can be highly useful when the economy is in doldrums.
If you are searching for high yields and are ascertaining asset classes other than traditional equity, investing in retail bonds may just be the alternative you may be looking for.
In fact, investing in retail bonds appears to be a sustainable investment option especially in the wake of the continued uncertainty across the financial markets.
The main pull of retail bonds for you as a private investor is that investment in these bonds can unfold for you a fixed income instrument, providing you with a steady income stream, over and above you regular monthly salary.
Another reason for you to consider the option of investing in retail bonds is that, in recent times, countries such as the UK have witnessed the launch a number of bonds which target retail investors in particular.
The structure of retail bonds generally comprises listed, exchange-tradable commercial debt paying conventional fixed rate coupons; or non-tradable bonds that pay out alluring coupons, including products or customer discounts and store vouchers.
Denominations and minimum buy-in of retail bonds is quite low:
Yet another motivation for investing in retail bonds is that a distributor network, comprising private banks, brokers and wealth managers, directly markets and sells these bonds.
Hence, retails bonds not only have low denominations, but also have low minimum buy-in — two important factors which make provisions for the private investors to invest small sums of money.
While the minimum investment sizes of institutional bonds can fall in the range of between €50,000 and €100,000 (Euros), underscoring too high an amount for retail investors, the fundamental nature of retail bonds is such that they characteristically enable you to make investments of €1,000s rather than making investments of higher amounts.
Given the advantages of retails bonds, you should also bear in mind the fact that the issue size of these bonds is typically smaller than the institutional bonds; and that there may be a variation in cost of funds vis-a-vis other sources of capital and across diverse debt maturities.
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