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Tuesday, November 14, 2023

Ultimate Guide to Bond Investing in UAE

By Century Financial in 'Blog'

Ultimate Guide to Bond Investing in UAE
Ultimate Guide to Bond Investing in UAE

Investing in bonds is a strategic approach to diversifying your investment portfolio, and for investors in the UAE , it offers a stable income with relatively lower risk than other asset classes. Here's a guide to help you navigate the world of bond investing within the UAE.

Why do companies sell bonds?

Companies sell bonds to raise funds for a wide variety of purposes, including:

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Improving governance of fintech
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Fully unleashing the potential of data as a production factor
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Building new digital infrastructure
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Deeping the application of core technologies
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Activating new drivers of digital operation
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Strengthening prudential regulation of fintech

Corporate bond ETFs offer:

Corporate bonds vs stocks

Buying stocks makes you a part-owner of a company, granting voting rights and potential dividends. Stocks offer higher rewards if the company thrives, but also higher risks, including total loss if the company fails. Corporate bonds, on the other hand, make you a creditor with more security, especially if the bonds are collateralized or classified as senior debt, offering protection in insolvency cases. However, bonds yield only fixed interest, regardless of the company's performance.

How to buy corporate bonds

To invest in the corporate bond market, you could either buy actual bonds or shares in a bond ETF. Although a wide range of corporate bonds are listed on exchanges such as the LSE, they are primarily traded over the counter (OTC) through institutional broker-dealers.

How to invest in corporate bonds directly

When a company decides to issue bonds, it’ll usually employ the services of a third party, like an investment bank, to ‘underwrite’ the issuance. This means that the bank, in effect, buys the bonds from the company first at a set price. It then sells the bonds to interested parties – typically other large institutions or funds.
Often, the minimum investment when buying corporate bonds from an institutional broker-dealer can be significant. This means direct investment can be prohibitively expensive for many retail investors.

How to invest in corporate bond ETFs

To diversify your portfolio or earn a regular income from dividends, you could consider investing in a corporate bond ETF. When investing in corporate bond ETFs with us, you’ll buy shares in the ETF through our stock trading platform.

Corporate bond ETFs use the power of pooled funds to buy a selection of bonds. They’re complex investment vehicles because their bonds may have different maturities, coupon rates and coupon dates.

Before buying shares in a bond ETF, it’s essential to understand what assets it holds and what the fund’s particular characteristics are. It’s also imortant to note that, unlike bonds, bond ETF shares never mature or repay a principal amount on the value of your share purchase.

How to Buy Bonds In UAE?

The 3 ways to invest in bonds in the UAE are listed below.

Let’s break down the 3 different ways to invest in Bonds in the UAE, starting with international bonds.

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Buy International Bonds You can buy international bonds by opening a brokerage account with one of the brokers that offer international bonds, like Century Financial
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Buy UAE National Bonds When you are buying national bonds, you are investing in UAE government-owned companies. National bonds are one of the most stable and secure investment options with average return rates.
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Invest in Bonds ETFs You can buy exchange-traded funds that only invest in bonds via online brokers. These ETFs are like bond mutual funds that invest in multiple short and long-term bonds of different companies and governments.
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Buy Bonds You can buy, hold and sell bonds that are available on the Century Trader App

In short

Investing in UAE bonds offers diversification and stable income with lower risk. Options include international bonds, national bonds, and bond ETFs. Tools like the Century Trader App facilitate easy entry into the market.

Interview of Arun Leslie John, Chief Market Analyst with Bloomberg

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