What is (Bond)? A Detailed Guide for New Investors in Vietnam

Why Are Bonds Considered a Safe Investment Option?

In the modern financial world, besides stocks, bonds are becoming an important fundraising channel. The corporate bond market in Vietnam is developing rapidly—with an average growth rate of 35% per year from 2016 to 2020. However, an interesting point is that despite the significant growth in scale, many investors still do not fully understand how bonds operate and how to classify different types of bonds.

Unlike stocks, when you own a bond, you are essentially a creditor—lending money to a company or the government. That’s why bonds are considered safer and suitable for investors seeking stable income from their idle capital.

Basic Concepts of Bonds and Notable Features

What is a bond?

A bond is a type of debt security (or also called a debt certificate) issued by the government, financial institutions, or enterprises. When issued, the issuer commits to pay the bondholder a specific interest periodically, and ultimately repay the entire principal at maturity date.

In other words, if you buy a bond, you will receive:

• A fixed or variable interest rate
• The full principal amount back at maturity

Three main features of bonds:

1. Has a maturity date and interest rate regulations - Unlike stocks, bonds have a predetermined end date
2. Can be issued in various forms - Including physical certificates, electronic records, or digital data
3. Yield-generating but with risks and liquidity considerations - Unlike bank savings, bonds carry certain risks

The Two Main Types of Bonds in the Vietnamese Market

In Vietnam, the two most common bond types are:

Government Bonds vs. Corporate Bonds

Common points of both types:

• Both are debt certificates allowing investors to receive interest
• Tradable, transferable, or assignable
• Offer higher interest rates than savings accounts
• Minimum term is 1 year

Detailed Classification of Bond Types

Based on Issuance Source

Corporate bonds - Issued by LLCs, joint-stock companies, or state-owned enterprises to attract investment.

Government bonds - Issued by the government to mobilize idle funds from citizens and economic organizations.

Bank bonds - Issued by financial institutions to increase operational capital.

Based on Yield

Fixed interest - Yield is determined by a fixed percentage of face value.

Floating interest - Yield varies according to payment periods, based on a variable interest rate.

Zero interest - Buyers do not receive interest but purchase at a discount to face value.

Based on Security Level

Secured bonds - Issuer uses valuable assets as collateral. In case of default, investors can seize and liquidate assets.

Unsecured bonds - No specific assets are pledged as collateral.

Based on Registration Form

Bearer bonds - No owner’s name recorded in the issuance register.

Registered bonds - Owner’s name is recorded, offering better legal security.

Based on Special Features

Convertible bonds - Can be converted into company stocks.

Warrant bonds - Include the right to purchase a certain number of shares.

Callable bonds - Issuer has the right to buy back bonds at maturity.

Bonds vs. Stocks: Which Is the Right Choice?

To help you decide, consider the comparison table below:

When should you choose bonds?

• Prioritize capital safety over high returns
• Seek stable, periodic cash flow
• Conservative investor with a long-term horizon
• Want to reduce volatility in your portfolio

When should you choose stocks?

• Accept risk for higher profit opportunities
• Have good market analysis skills
• Have time to monitor the market
• Want to own a part of the company

Conditions and Procedures for Bond Investment in Vietnam

Bond Purchase Conditions

To buy bonds in Vietnam, you need a trading account at a reputable securities company. Opening an account is simple and takes only a few minutes. You should prepare:

• ID card/Passport
• Contact information
• Bank account details

Two Forms of Bond Investment

Form 1: Direct Investment

Step 1: Sign a purchase agreement directly with the issuer or through a securities company

Step 2: Transfer funds to the issuer according to the schedule, receive ownership certificate

Step 3: Receive periodic interest payments as agreed

Important costs:

• Personal income tax
• Transfer fees (contract, printing confirmation)
• Money transfer fees

Form 2: Investment via Bond Funds

Step 1: Open a trading account and register for fund certificates

Step 2: Place buy/sell orders according to each fund’s form

Step 3: Hold or trade based on your needs

Important costs:

• Personal income tax
• Transaction transfer fees
• Annual management fees
• Penalty fees for early sale

Key Terms to Know

Criteria for Smart Bond Selection

To choose suitable bonds, consider:

• Issuer’s reputation - Prioritize large organizations, transparent information (government, leading banks, top industry companies)

• Industry position - For corporate bonds, select industry leaders with clear competitive advantages

• Financial health - Check the issuer’s transparent and healthy financial status

• Management team - Trustworthy management focusing on sustainable business activities

• Asset collateral - Prefer bonds secured by specific assets

• Independent audit - Choose companies audited by reputable auditing firms

Main Risks When Investing in Bonds

Although bonds are considered safe, investors must understand three main risks:

Credit risk (Credit Risk) - Also called default risk, occurs when the issuer cannot pay interest and principal at maturity. Recently, the Vietnamese corporate bond market has seen such incidents, raising investor caution.

Prepayment risk (Prepayment Risk) - Occurs when bonds are repaid earlier than expected, leading to reduced interest income. This is usually unfavorable for investors.

Interest rate risk (Interest Rate Risk) - Happens when market interest rates change relative to expectations, affecting the bond’s market value.

Frequently Asked Questions

Should I buy government or corporate bonds?

It depends on your strategy and assessment ability. If absolute safety is your priority, government bonds are the best choice with fixed interest and near-certain capital preservation. Corporate bonds, although offering higher yields and shorter, more flexible terms (more flexible), carry higher potential risks.

Are bank bonds safe?

Yes, bank bonds are considered quite safe because banks are closely monitored by state authorities. For maximum safety, choose large, reputable domestic banks.

How much money do I need to invest in bonds?

• Direct investment: About 100 million VND
• Via funds: Lower, around 5-10 million VND

Can I quickly profit from bonds?

Bonds are not short-term investments for quick profits. They focus on stable cash flow over the long term. If you want quick gains, consider other investment tools.

Conclusion

The Vietnamese bond market is developing dynamically, opening many opportunities for investors. However, the market’s complexity, especially for new investors, cannot be ignored. To participate effectively, you need to master basic terminology, understand key calculation indicators, and have risk assessment knowledge.

Additionally, the minimum term of 1 year makes bonds less attractive to young investors seeking flexibility. Nevertheless, for conservative long-term investors, bonds remain an extremely attractive investment channel.

We hope this information provides a comprehensive view of the bond world. Choose an investment strategy aligned with your goals and capabilities. Wishing you success on your investment journey!