Bonds are Not 100% Risk Free

Posted in Malaysia Financial News, Malaysia Investment, Malaysia Personal Finance |

Bonds are issued by corporations and governments to the public whenever a large sum of money is needed to fund new ventures and projects.

In return, investors who purchased such bonds will be given return in the form of interest over the specified loan period, with the interest rate mutually agreed by both parties.

In most cases, the interest given is usually higher than the Fixed Deposit rates you get from the bank, since you are taking a considerable amount of risk. In case of a default from the borrower, which means if the borrower is unable to pay back, your bonds will literally turn into “recycled paper”. Ouch!

Government bonds are usually a very good place to start bond investing, since in Malaysia, we have a pretty much stable political environment which we can “bank-on”.

For corporate bonds, investors should do their homework; check the company’s track record, management team, financial report, existing debts etc to reduce the risk of losing money in the bond market.

Overall, bond markets are good for secure returns and is significantly less risky than equity market.

But no one said it’s 100% Risk Free:

Via The Star Online> Bondholders voice concern over default

In that event, a borrower was able to withdraw from a bank account, funds which were meant to be used to repay the bondholders. The borrower was able to make the withdrawal because the trustee allegedly did not ensure it was the sole signatory to the bank account.

The bondholders filed a civil suit in the Kuala Lumpur High Court last month when it named the borrower, trustee and lead arranger of the bonds as defendants. The bondholders hope to recover more than RM100mil lent to the borrower.

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