I just saw a discussion about what bonds are in the investment community, and many newcomers still confuse bonds with stocks. Actually, bonds are a pretty attractive investment channel, just less mentioned than stocks.

What’s good about bonds? They are much safer than stocks. Owning a bond essentially means lending money to a company or the government, then receiving periodic interest. It’s not like owning a company’s shares. In Vietnam, the corporate bond market has grown an average of 35% annually from 2016-2020, but many investors still don’t understand it clearly.

I will share some basic information about what bonds are and how to buy them in Vietnam. Bonds have three main characteristics: they have a fixed term and fixed interest rate, can be issued in various forms, and have profitability and liquidity features. There are two main types: government bonds (issued by the state) and corporate bonds (issued by private companies).

The difference between these two types is quite clear. Government bonds are very safe, with fixed interest rates, long terms (5-30 years), but lower yields. Corporate bonds offer higher interest rates, shorter terms (1-3 years), more flexibility, but also higher risks. To buy bonds, you just need to open an account with securities companies like VPS, MBS, Vndirect, SSI.

There are many ways to classify bonds. Based on interest rates: fixed interest, floating interest, or no interest but purchased below face value. Based on collateral: secured bonds (backed by assets) and unsecured bonds. Some bonds can also be converted into stocks or come with stock purchase rights.

Compared to stocks, bonds are safer but offer lower returns. Stocks provide higher profits, but you must bear the risk of price fluctuations. Bonds have a defined term, while stocks do not. If you prefer safety and want steady cash flow, bonds are a good choice. If you want higher profits and can tolerate risks, stocks are more suitable.

There are two main ways to invest in bonds. The first is direct purchase: sign a contract with the issuer, transfer money, receive a certificate, and get interest at maturity. The second is through funds: open an account, place an order to buy fund certificates, and the fund manages the bond portfolio for you. Direct purchase requires a larger capital (around 100 million VND), while through funds is lower (5-10 million VND).

Some terms to know when investing in bonds: issuance date is when the bond starts trading. Maturity date is when the payment is due, and you get back the principal. Coupon is the interest rate the issuer commits to pay. Face value in Vietnam is usually 100,000 VND or 1 million VND. NAV is the estimated asset value of a mutual fund.

When choosing bonds to buy, prioritize reputable organizations like the government, large banks, or leading companies in their industries. Review the issuer’s financial health, whether the management team is trustworthy, and if the bond is collateralized. It’s best to select companies audited by major auditing firms.

There are three main risks when investing in bonds. Credit risk (or default risk) is the issuer’s inability to pay interest or principal at maturity—such cases have occurred in Vietnam with companies like An Đông or Tân Hoàng Minh. Prepayment risk occurs when the bond is paid off early, reducing expected interest income. Interest rate risk is when market interest rates change compared to expectations.

Overall, if you like domestic stocks, have knowledge and financial resources, bonds remain an attractive financial channel. The Vietnamese bond market has great potential, especially considering its 35% annual growth in the past. To participate effectively, you need to understand key terms and basic indicators. I hope this sharing helps you better understand what bonds are and how to invest in a way that suits you.