Corporate bonds

Ordinary citizens face higher risk when buying corporate bonds

VIETNAM, September 9 –

HÀ NỘI — Ordinary citizens face higher risk in the current stock market environment, the finance ministry said in a recent report released after a number of recent high-profile corporate scandals.

A number of companies in recent years have deliberately promised above-market interest rates to lure people in. The ministry said there had been an increase in the activity of investment advisory firms and financial institutions to approach and persuade large numbers of people to put their savings into corporate bonds and shares.

Some people have been advised to take advantage of loopholes to sign investment contracts with securities firms to buy private deals, which is prohibited by law.

A major vulnerability, according to the report, was their lack of ability to conduct thorough analysis and risk assessment when buying corporate bonds and stocks. The ministry advised potential investors to carefully study bond issuers’ business performance and demand for their products and services before putting money aside.

While some high-quality corporate bonds are considered relatively safe and conservative investments, investors who buy a corporate bond are actually lending money to the company. It is important to remember that this is not a savings account and is ultimately the responsibility of the bond issuers to repay. Citizens run the risk of losing some or all of their savings in the event of bond issuer default or financial difficulties.

In addition, financial institutions and securities firms only act as intermediaries by providing their services to bond issuers and citizens on a fee basis. They are in no way responsible for reimbursement in the event of default by the issuer for reasons such as insolvency or bankruptcy.

Even in the case of guaranteed bonds, citizens were asked to check whether and to what extent the guarantee covers their investments.

Citizens are also recommended to learn about bond issuer guarantees to better understand how their investments can be recovered in the event that issuers are forced to default. In Việt Nam, a large part of the collateral consists of real estate, development projects and shares of issuers. As such, not all of them can be cashed in quickly or at all in the event of a market shock. In some cases, they will not be able to recover citizens’ investments in full.

The department said a common pitfall that should be avoided at all costs was buying high-yield bonds without reviewing the business performance and warranties of the issuers, while not taking the time to fully understand the terms and conditions. transmitters. VNS