Comprehensive Guide to Bond Investment: Opportunities and Challenges in the Vietnamese Market

Why Are Bonds an Attractive Investment Choice?

In recent years, bond investing has become a popular capital allocation channel for many investors in Vietnam. The corporate bond market has experienced impressive growth, averaging 35% per year from 2016 to 2020, reflecting the strong development of the economy. The fundamental difference between bonds and stocks is the higher safety, making them suitable for individuals with idle capital who want to maintain financial stability.

However, many people still hesitate when deciding between investing in bonds or stocks. This article will help you understand how bonds work, their classifications, and the steps to start an effective bond investment journey.

What Are Bonds? Basic Concepts You Need to Know

Bonds are a type of security, also called “debt securities.” When you buy a bond, you are essentially lending ( an issuer, which could be the government, a bank, or a business ) a sum of money. In return, you will receive periodic interest payments and the principal amount back at maturity.

Simply put: the bondholder is the creditor of the issuing organization.

Main Features of Bonds

• Fixed maturity date: Bonds are not perpetual investments; they have a clear maturity date ( at least 1 year )
• Interest rate determined: Returns are calculated based on fixed or floating interest rates depending on the form
• Various formats: Can be issued as certificates, book-entry records, or electronic data
• Profitability potential: Offers both profit potential and certain risks, but relatively liquid

Conditions to Buy Bonds in Vietnam

Very simple: you just need to open an account with a licensed securities company. Some popular securities firms include VPS, MBS, Vndirect, and SSI. The account opening process and providing personal information only take a few minutes.

Comparing the Two Main Types of Bonds: Government vs. Corporate

In the Vietnamese market, bond investment mainly focuses on two types:

Similarities Between the Two Types

• Both are debt certificates, allowing investors to act as lenders
• Both can be traded, bought, sold, gifted, or transferred
• Both offer higher interest rates than regular savings accounts
• Both have a minimum term of 1 year

Types of Bond Classifications

To better understand the market, let’s explore the classifications of bonds:

Based on Issuance Source

Corporate bonds are issued by state organizations, LLCs, or joint-stock companies to attract capital.

Government bonds are issued by the government to mobilize idle funds from citizens and economic organizations.

Bank bonds are issued by financial institutions to increase working capital.

Based on Interest Rate Format

• Fixed interest: Returns are determined by a specific percentage rate
• Floating interest: Returns vary across periods based on fluctuating interest rates
• Zero-coupon: Buyers do not receive interest but purchase at a price below face value

Based on Guarantee Level

Secured bonds are supported by specific assets. If the issuer defaults, holders have the right to seize those assets.

Unsecured bonds have no supporting assets, relying solely on the issuer’s creditworthiness.

Other Types

• Bearer bonds: No registered owner
• Registered bonds: Registered in the owner’s name in records
• Convertible bonds: Can be converted into stocks
• Bonds with purchase rights: Include stock purchase rights
• Callable bonds: Issuer has the right to buy back

Bonds Vs. Stocks: Which Is Right for You?

If you prefer safety and stable returns, bond investing is a good choice. However, if you have low capital, want quick profits, and are willing to accept higher risks, foreign stocks might be more suitable.

Frequently Asked Questions When Starting Bond Investment

Which Bond Should I Start With?

The answer depends on your personal goals. If you prefer absolute safety, choose government bonds—they usually have fixed interest rates and near-perfect capital preservation. For corporate bonds, interest rates are often floating, with shorter terms, more flexibility, but also more potential risks.

Are Bank Bonds Safe?

Yes, especially if you choose large banks like Techcombank, Vietinbank, Vietcombank, or HDbank. These bonds are considered safe, reputable, and closely monitored by regulatory authorities.

How Much Money Should I Invest?

If direct bond investment, you need an average capital of about 100 million VND. However, if investing through funds, the minimum amount is lower, typically from 5-10 million VND.

What Are the Main Risks?

There are three main risks in the bond market:

1. Credit risk (default): The issuer cannot pay interest and principal at maturity. Recent examples include the cases of An Đông Company, Vạn Thịnh Phát Group, and Tân Hoàng Minh Group.

2. Prepayment risk: Bonds are paid off earlier than expected, leading to significantly reduced interest income.

3. Interest rate risk: Changes in interest rates compared to initial expectations.

Process to Start Investing in Bonds in Vietnam

Method 1: Direct Investment

Step 1: Sign a bond purchase contract with the issuer

Step 2: Transfer funds as per regulations and receive ownership certificate

Step 3: Receive interest payments upon maturity, along with principal

Important costs:

• Personal income tax
• Transfer fees (contracts, printing, etc.)
• Money transfer fees
• Conducted at: Issuing company or securities firm

Method 2: Investment via Funds

Step 1: Open a trading account and register to buy fund certificates

Step 2: Place buy/sell orders according to fund regulations

Step 3: Hold or exchange as needed

Important costs:

• Personal income tax
• Transaction transfer fees
• Fund management fees
• Penalty fees if sold early
• Conducted at: Bond investment funds

Important Terms You Must Know

Rational Criteria for Choosing Bonds

When deciding to invest in bonds, consider:

• Issuer’s credibility: Choose highly reputable organizations such as the government, large banks, or leading enterprises
• Financial health: Research transparent and publicly available financial information of the issuer
• Competitive leverage: For corporate bonds, select industry-leading companies with sustainable competitive advantages
• Management team: Assess whether the management is trustworthy, focusing on traditional business operations
• Collateral assets: Prioritize bonds backed by real assets
• Independent audit: Choose bonds issued by companies audited by major audit firms

Conclusion: Your Journey with Bonds

The bond market in Vietnam is developing rapidly, opening many opportunities for investors. However, to participate effectively, you need to master basic concepts, industry-specific terms, and key indicators.

One point to note: since the minimum term is 1 year, bond investment is more suitable for long-term investors seeking stable profits, rather than those looking for quick trading.

Whether you are a beginner or experienced investor, understanding bonds will help you make smart, suitable investment decisions aligned with your personal financial goals. Start with basic steps, gradually enhance your knowledge, and good luck on your effective asset allocation journey!