Imagine this, you lend your friend money and your friend promises to pay it back with an extra amount at a certain agreed-upon rate. This is basically what bonds are- an agreement between you (the investor) and the issuer (the government).
Before buying bonds, it is important to understand your profile: your risk tolerance, investment timelines, and financial goals. This will guide your investment journey.
Understanding bonds
Beapphine, a seasoned broker at ABC Capital, notes that bonds are long-term commission instruments issued by a government to raise funds and are divided into 2:
- Corporate bonds
- Government bonds are further divided into Infrastructure bonds and fixed bonds. Infrastructure bond is tax-free while fixed bond proceeds incur a tax rate of 10% (If above 10 years) and 15% (for those less than 10 years).
When you invest in bonds, the issuer (government) pays you periodically (every six months) in what is called a coupon payment. The principal amount (amount invested) will then be returned at the end of the agreed-upon period/maturity.
How to buy bonds
Opening a DhowCSD account is as easy as 123:
- Download the DhowCSD account on the Google Play Store or visit the CBK website and click on the DhowCSD portal.
- Upload copies of your KRA PIN, ID, and passport photo.
- Fill out your bank account details to which your coupons will be sent every six months.
- Once all data is received by CBK, it is sent to your bank for verification.
- CBK will then create an account and notify you through your email of the account created.
With that in mind, how do you know if bonds best suit you?
Bonds are low risk as compared to stocks meaning, they are best for risk-averse individuals. Secondly, the interest rates for bonds are standard and lastly, Bonds are a long-term investment as compared to stocks.
As you think through which investment option works best for you, it is crucial to understand your needs and also walk with a financial partner, like ABC Capital, to make the investment journey easy. Finally, remember that the real magic lies in balance.
A diversified portfolio can be your ultimate financial partner, equipped to handle any financial terrain. So, assess your risk tolerance, investment goals, and inner financial persona then, mix and match to create a portfolio that’s uniquely yours.
Invest wisely!