Bonds are interest-bearing credit titles that anyone can subscribe to companies or states.
The holder of a bond is called a bondholder.
With the issuance of the bond, the respective title is issued.
Through bonds, investors receive a constant return through payments, usually annual, of interest (coupon) and the return of the nominal value owed at maturity.
A bond is a credit note issued by the state or company.
Anyone who invests in bonds is lending money to one of these entities.
Taking a company as an example, when we invest in the stock market, we are buying part of that company, entering into its share capital.
When we invest in the bond market, we are lending money to it.
A bond is a financial product that allows an investor to lend money to an issuing entity.
In exchange for holding a bond, creditors receive interest, also called the coupon rate.
It's a form of borrowing.
The buyer of a bond is, by definition, the creditor, while the issuer is the debtor.
Issuing this type of product is a way in which entities can finance themselves.
The money that a company receives from issued bonds is seen as a loan.
In general, it must be repaid over time on a previously agreed date.
Until that date, the bondholder (creditor) receives interest payments.
Issuing entities can be companies, cities or even national governments.
There are three main elements of a bond that are important for you to understand: coupon, face value, and maturity (due) date.
Bonds are financial instruments that represent a loan taken out from investors by the entity that issues them, which can be companies, states or other public or private entities.
When acquiring a bond, the investor becomes a creditor of that entity.
There are many different types of bonds and different markets through which they can be traded.
Knowing these differences and the specific characteristics of each bond issue allows investors to understand the risks they incur.
At the time they are issued, bonds can be sold directly to the general public, for example through over-the-counter subscription at banks for a pre-defined period or just placed with institutional investors (so-called placement on the primary market).
In the latter case, private investors are generally only able to acquire these bonds if these bonds are, after the initial sale, placed on a stock exchange and available for trading (so-called placement on the secondary market).
Before investing, it is fundamental that the investor reads all available information regarding the product and that he only invests if he fully understands the implications of his investment.
Each financial institution can charge different commissions, so before investing, the investor should compare the prices practiced in the market, since the return obtained with the investment can change significantly depending on the costs incurred.
Most bonds purchased at the time they are issued guarantee capital at maturity.
However, there are exceptions, so it is important to read all the specific documentation for the product before subscribing.
If the investor intends to dispose of the bonds before maturity, he is subject to market risk.
Depending on the type of bonds, at the time of issuance the following are fixed:
• The face value, which normally corresponds to the amount that will be refunded at the end of the respective term;
• The term of the loan and therefore the maturity of the obligations;
• The existence and frequency of interest payments;
• The applicable interest rate, which may be fixed or variable.
Obligations can also take on different forms:
• With supplementary interest or repayment premium, fixed or dependent on the company's profits;
• With interest and repayment plan, dependent and variable according to profits;
• Mandatorily convertible into shares;
• With the right to subscribe to one or more shares, also called bonds with warrants;
• With issue premium.
Taxation on obligations
When subscribing to bonds, the investor must also pay attention to the applicable taxation.
Various taxes are levied on the bonds: IRS (on interest payments and capital gains) or IRC and stamp duty.
Bond income (interest) is considered capital income, regardless of whether or not the bonds are issued at a discount.
The sale or free transfer of bonds is taxed as capital gains obtained.
The applicable tax rates depend on the regime to which the investor is subject as a resident or non-resident taxable person in Portuguese territory and may change over time, so it is always very important to read the information on this matter that is obligatorily contained in the prospectus. , the final conditions or the technical sheet of the obligations.
This reading should not replace more in-depth information that the investor should obtain.
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