In the realm of finance, corporate bonds are viewed as a relatively low-risk investment option, offering a consistent and predictable income stream for investors who prefer to avoid the volatility of more speculative investments.
Issued by companies to diversify their funding sources, corporate bonds come with several advantages over other financial instruments. One of the key benefits is the regular interest payments (also known as coupons), which provide a steady return for investors. This makes bonds less risky compared to stocks, whose values can fluctuate significantly. Furthermore, corporate bonds often yield better returns than traditional savings accounts and are considered a safer alternative to real estate investments.
Once you’ve decided to enter the world of investing and purchase corporate bonds, you have a couple of options. You can hold the bonds until their maturity date, collecting interest payments over time and, at the end of the term, receiving back the principal amount that you initially invested. Alternatively, you could choose to trade the bonds on the secondary market, selling them before they mature to achieve a quicker return on your investment.
Corporate bonds in Serbia
While the corporate bond market in Serbia is still in the early stages of development, there have been significant advancements. One notable step forward occurred in mid-November when the Assembly of Shareholders of NIS approved the company’s first issue of corporate bonds. NIS issued 585,500 bonds, each with a nominal value of 10,000 dinars. The minimum investment for the primary bond issue is EUR 100,000 (in dinar equivalent), and the offer is available to select investors through a designated broker.
These bonds have a five-year term with no option for early redemption. They offer an annual yield of 6.5%, with quarterly coupon payments. For investors making the minimum investment of 100,000 euros, the annual income from the bond’s interest payments, after tax deductions, is approximately 5,520 euros. Over the five-year period, investors could expect to earn around 27,600 euros.
The importance of the secondary market
A key aspect of NIS’s bond offering is the ability to trade the bonds on the Belgrade Stock Exchange, which could have a significant impact on the development of Serbia’s domestic securities market. NIS sees this as an important step in diversifying its sources of capital and reducing its reliance on banks for funding. The company also views the bond issuance as a way to attract new investors and generate capital that can be used for further modernization and development projects.
The ability to trade bonds on the secondary market not only adds liquidity but also creates opportunities for investors to buy and sell bonds before their maturity dates, potentially profiting from price fluctuations. This secondary market is expected to play a crucial role in fostering a more dynamic and liquid financial market in Serbia.
In conclusion, corporate bonds represent an attractive and relatively stable investment option, especially for those seeking reliable income and less risk exposure. With the recent advancements in the Serbian bond market, investors have more opportunities to explore, particularly with the launch of NIS’s bond issue. This step forward, along with the growing potential for secondary market trading, marks an important milestone in the development of Serbia’s financial landscape.
