Suppose you want to invest free funds somewhere in less reliable instruments that are not subject to strong market fluctuations. What to choose, without delving into the professional subtleties? Today I propose to consider investing in federal loan bonds or OFZ. This is a conservative instrument with a return that, although small, but often higher than that of a bank deposit (not to mention the possibility of entering the cache at any time), besides, OFZs have the highest reliability among all Russian investment instruments (see securities RF ). This is enough to treat him with the utmost attention.
Types of OFZ
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As you know, bonds come in different types. Depending on the issuer, they are divided into state and corporate. Depending on the method of accruing income, there are bonds with fixed income, fixed income, variable coupon, indexable index and debt amortization. By maturity, there are short-term, medium-term and long-term bonds. A detailed description of the differences between the types of bonds is not included in the task of this article, since an entire article has already been devoted to this (see what bonds are ). Here we dwell in detail on an instrument such as federal loan bonds or OFZ.
The issuer of this type of bonds is the Ministry of Finance of Russia. Accordingly, the state acts as a guarantor of timely payments on coupons and redemption of bonds. The purpose for which OFZs are issued is to raise funds that are not budgeted for to finance government spending. Accordingly, it is logical to expect from this instrument a return that is comparable to the refinancing rate of the Central Bank of the Russian Federation, although in practice deviations in both directions are possible. The serious merit of OFZ is the availability even for investors who do not have large resources: the nominal value of one bond is 1000 rubles.
Consider the types of OFZ currently in circulation:
- Bonds with a fixed income or coupon. They are denoted by the PD index, for example, OFZ-26218-PD. The term of circulation of such bonds is from 1 to 30 years. Coupon payment is made once a year.
- Bonds with a variable coupon. They are denoted by the PC index, for example, OFZ-29005-PK. Circulation term is from 1 to 5 years. Payment of coupons 2 or 4 times a year.
- Bonds with indexed par. They are denoted by the index IN, for example, OFZ-52001-IN. Circulation term is from 1 to 30 years.
- Bonds with amortization of debt. They are denoted by the index of blood pressure, for example, OFZ-46022-HELL. Circulation period is from 1 to 30 years. Coupon is paid 4 times a year.
Variable coupon bonds are pegged to a floating interest rate, usually RUONIA. This abbreviation stands for Ruble Overnight Index Average (rate of one-day interbank loans in the Russian market). The calculation of this indicator involves the largest banks in Russia (their number is variable, currently the list consists of 35 banks). Each coupon is calculated based on the average RUONIA value over the past 6 months.
Bonds with indexed par appeared on the Russian market relatively recently. Their meaning is that the nominal is indexed each year by the official inflation rate in Russia . At the same time, the yield of such bonds is extremely low and currently amounts to approximately 2.5% per annum. Thus, these bonds preserve the purchasing power of savings, but are not suitable for active investment, i.e. use coupon payments to expand your investment portfolio. On the other hand, in a situation of economic uncertainty, these bonds may be the most reliable. Indexing is done every day. Values of current and future nominal can be found on the website of the Ministry of Finance, where they are published a few days before the beginning of the month, from which the new value comes into force. Indexed amount is not taxable.
In addition, for a limited time, fixed-income bonds with an FD index were present on the Russian market. They had variable returns, but for a certain period of time it was strictly fixed and known in advance. OFZ-FD appeared in 1999 as compensation to the GKO owners, for which in 1998 a default was declared . The yield of bonds with fixed income initially reached 60% per annum, but then continuously decreased. Their maturity was 5 years.
There is also a type of bond without coupon yield. They are placed at a discount relative to the nominal value, which is still 1,000 rubles. In this case, the placement price may be, for example, 950 rubles. Such bonds usually have a maturity of less than a year, i.e. are short term. At the moment OFZ of this type in circulation are absent.
The most complete information on bonds traded on the Russian market can be found on the website rusbonds.ru.
The data is sorted by all possible parameters available for the bonds, both corporate and government. Unfortunately, in practice it is often the case when some bonds that are in circulation and satisfy the chosen conditions are not searched. Most likely, this is a technical problem.
What to consider when buying a OFZ
The general approach to the choice between types of bonds involves an analysis of the state of the financial market, both for the current moment and for the future. For example, if the current refinancing rate is very high, but in the near future it is expected to begin to decline, it makes sense to choose the OFZ PD. In this case, the yield of bonds may be steadily higher than bank deposits (see how to choose a bank to open a deposit ).
If the financial system is in a state of short-term correction after the shocks, but the prospects are vague, it is better to focus on the OFZ PC, as a more flexible tool. We must not forget that OFZs are a stock exchange instrument and, therefore, they are subject to fluctuations in quotations. In other words, bonds can be traded both below and above par.
Bond quotes are measured as a percentage of face value. For example, if at the moment the quotation is 95%, then the bond can be purchased for 950 rubles. Closer to the coupon payment date bond quotes tend to increase. The fact that the game on quotes potentially increases the possibility of income, makes the bonds, to some extent, a tool not only investment, but also speculative, especially when using leverage .
Generally speaking, there are quite a few reasons for changing OFZ quotes. The most significant of these are the type and magnitude of profitability. Bonds with fixed income, issued before 2014, tend to trade below par, because they have a low yield. On the contrary, variable coupon bonds are traded above par, especially if the next payment period is approaching. When considering OFZ quotes, one can pay attention to such a parameter as current yield. It is obtained by dividing the annual coupon by the current bond quotation as a percentage of the nominal. For example, if the coupon is 10% per annum, and the current bond quotation is 102%, then the current yield is equal to 9.8%.
How to extract the maximum profit from OFZ
Coupon on bonds is paid 2 or 4 times a year. In the intervals between payments, there is an accumulation of income, and in the case of the sale of a bond, its former owner could have lost this income if a special mechanism had not been provided for. The essence of this mechanism is that the indicator is calculated, called the accrued coupon income (ACE):
K – the value of the current coupon;
T 0 – the current date;
T (К-1) – the date of the beginning of the coupon period, counting from the date of payment of the previous coupon;
T (K) – the date of payment of the next coupon.
Thus, when buying and selling bonds, the buyer pays the seller, in addition to the amount of the current market value of the bond, also the amount of ACI at the date of the transaction. This amount is displayed in the trading terminal window, which saves participants in the bidding from having to perform calculations. Thanks to the described mechanism, the seller does not lose part of the income accumulated between the previous payment of the coupon and the date of the transaction, and the buyer, receiving the amount of the next payment, covers the cost of the amount of NKD and he has income for the period between the transaction and the date of the next payment of the coupon.
Speaking about the possibilities of obtaining the maximum income from OFZ, one cannot but touch upon the topic of opening an individual investment account (IIS). With funds credited to such an account, you can get a 13% tax deduction, or exempt from profits on trading operations. To do this, the investor must have taxpayer status, i.e. receive official income.
The meaning of the tax deduction is as follows. The investment account is replenished with funds that the investor had previously received as his income. With this amount, he has already paid personal income tax. However, to stimulate investment activity of the population, the owner of the IIS receives back the amount of the tax paid in the amount of 13% of the amount of the account replenishment.
In this case, a mandatory condition must be observed: the investment account can be closed no earlier than 3 years after opening, otherwise the deduction amount will have to be returned. The maximum amount from which you can get a tax deduction is currently 400 thousand rubles. The use of IIS for the purchase of bonds is interesting in that for the period of 3 years, the coupon income is made up with tax deduction and the total income turns out to be significantly higher. In case of placing funds on a bank deposit, this possibility is absent.
How to buy OFZ
Currently, OFZ operations are conducted on the Moscow Stock Exchange. To purchase bonds, it is necessary to open a trading account from any broker, for example, personally, I have brokerage accounts opened in Finam and VTB24. You can choose and buy OFZs in the trading terminal, for example, in the Quik platform. Step-by-step instructions on how to buy OFZs are usually on the website of a brokerage company. In general, the process is not very different from the purchase of Gazprom shares . You can buy shares by clicking the button below.
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The technical complexity of investing in OFZs repels beginners, because it requires special knowledge. In addition, the services of a broker are paid in the form of a commission, therefore, investments in the amount of several thousand rubles may turn out to be slightly more profitable than a usual bank deposit. Since last year, the Ministry of Finance of Russia has repeatedly promised to develop a special simplified program for the purchase of federal loan bonds for individuals and launch it already in 2016. However, the implementation of this program is delayed and so far no specific deadlines have been named. For this reason, investing in OFZs is still a matter for a small group of experienced investors.