How to invest in OFZs to earn more

2024 Author: Malcolm Clapton | [email protected]. Last modified: 2023-12-17 03:44

A suitable option for people who do not want to take risks.

What is OFZ

Federal loan bonds are debt securities issued by the Russian government. Countries almost always need financial resources, but it is difficult to attract them from taxes, excise or budget funds, so the state turns to investors. It takes money from them for a specified period in which it guarantees to return the entire amount - the face value of the bond. Also, investors are promised coupons - periodic interest payments, in fact, similar to the accrual of interest on a deposit.

Any private investor can buy OFZs on the Moscow Exchange: these securities are available through any broker. Bonds are floated frequently, and there is enough for everyone. For example, at the beginning of 2012, 350 million OFZ 26207 were issued. Each paper costs 1,000 rubles. Coupons are transferred twice a year, and they are equal to 8, 15% per annum.

Government debt is considered a safe asset, so bonds are constantly issued and bought. For example, such securities are placed by the US Treasury, UK Treasury and China Treasuries. The first have the highest credit rating - AAA, the second - AA, and the third - A. Rating agencies believe a little less in Russia - BBB, but it's still a safe investment.

For whom OFZ are suitable

Financial advisors like to offer novice investors to build a 60/40 portfolio - 60% of stocks and 40% of bonds. In reality, the share and the presence of the latter in general depend on the goals, age, risk tolerance and time horizon of the investor.

There are situations in which it is worth taking a closer look at OFZs:

• Long-term savings. If an investor is going to buy an apartment or pay for education for children in 5-10 years, then it is important for such a person not to lose money. Stocks fluctuate too much, so it is wise to sacrifice potential profitability, but keep and increase the savings a little.
• "Parking" money for a short time. Sometimes an investor does not see good stocks to invest or thinks that the time has not come yet. He can buy bonds to protect capital from inflation while waiting for the right option.
• Learning with little blood. Government bonds are fairly safe and often not as complex as corporate bonds. A novice investor can figure them out pretty quickly without losing a lot of money in the learning process.

What are OFZ

They differ in terms of maturity, yield, frequency of coupon payments. The latter are also different: four types are available to everyone on the Moscow Exchange, and another one is offered only by some banks.

Constant coupon

Shortly they are called OFZ-PD, this is the most popular and widespread type of government bonds. It is easiest for private investors to understand them, because the principle of operation is similar to a regular deposit in a bank: the schedule and amount of payments are known in advance, the profitability does not change.

For example, OFZ 26207 from the beginning of the article belongs to this type - until 2027, every February and August, the investor will receive a coupon from the bond for 40, 64 rubles.

Variable coupon

Known as OFZ-PC: the size of all coupons is announced in advance, but the percentage changes over time. It is cleverly calculated depending on the key rate of the Central Bank: if it is raised, then bonds become more profitable after it. But it works the other way around.

For example, OFZ 24020 was issued in the summer of 2019, and a coupon is received every four months. When the key rate was higher, investors received 6, 2-6, 8% per annum. Then it fell, followed by the bond yield down to 4%.

Now the key rate, and with it the yield, is growing, but the future is unknown. Therefore, bonds of this type are suitable for those who are ready to analyze the market and try to catch trends.

Indexed

Or OFZ-IN. The coupon interest remains the same (low), but the face value is indexed to the inflation rate every year. For example, OFZ 52001 was issued in 2015 with a face value of 1,000 rubles and a coupon rate of 2.5%. If the investor had bought it at the very beginning, he would have received 25 rubles from one security per year.

But a purchase in June 2021 would have brought more - in a few years, the face value increased to 1305 rubles. The nominal yield at the same coupon rate is 32.6 rubles. And this is even with a fairly low inflation - the higher it is, the more profitable it is to hold securities of this type.

Debt amortization

Briefly - OFZ-AD. In addition to coupons, the state also repays the main debt in installments. It's like a normal loan payment, when a third of the amount is interest, the rest is on borrowed money.

For example, OFZ 46022 has been in circulation since 2008, and it will be redeemed in 2023. The face value of the bond was initially 1,000 rubles, and the coupon rate was 7.5%. The investor is paid 37 rubles twice a year, but on July 20, 2022, half of the face value will be returned: the person will receive 500 rubles and a coupon for another 27, 42. After that, the two remaining coupons will come, but only 13, 71 rubles each - because they will be credited on the debt cut in half.

It is difficult to calculate even the nominal yield on such securities. Taking into account market fluctuations, commissions and taxes, things are even more difficult, so bonds with amortization are gradually leaving the market.

With "nationality"

Papers of the OFZ-N type appeared several years ago, they are intended only for individuals - hence the “N” in the name, which officially means “folk”. In fact, these bonds are closest to OFZ-PD: the dates of coupon payment, maturity dates, and rates - which change upwards over time, are immediately known. But you cannot buy such paper on the stock exchange, only in one of four banks: VTB, Sberbank, Promsvyazbank and Post Bank.

For example, OFZ 53008 was issued in early August 2021, there will be six coupons twice a year: in February and August. But the rate on them should rise from 5 to 8, 87%: if an investor buys a bond at the very beginning, then on the first coupon he will receive 27, 12 rubles, and on the sixth - 44, 23.

How to make money on OFZ

A private investor has several ways - from traditional for the stock market investments and speculation to legal tax optimization.

Receive coupon income

There are investors who are not ready to spend time and effort on painstaking analysis of bonds - they just want to "park" money and watch how it grows.

Let's say a person has a million rubles, which he wants to set aside to buy an apartment in six years. An investor is not ready to invest in stocks that may rise, or may fall dramatically. Therefore, he buys OFZ 26207 with a coupon of 8, 15%: every year a person will receive 81, 28 rubles on coupons.

In 2027, the investor will receive the bond par value - one thousand rubles, plus coupon payments - 487.64 rubles will remain. This means that the initial capital will grow by almost 50%.

An investor can also diversify his portfolio and buy ETF shares, which already have a whole basket of OFZs. For example, the exchange-traded fund SBGB consists entirely of 23 government bonds of various issues, and in Otkritie - Bonds they account for 22%.

Earn on the price difference

Bonds do not have to be held to maturity - you can speculate with them and make money on the difference between buy and sell prices.

Let's say an investor bought OFZ 24020 in March 2021. The bond was then cheaper: he could buy it for 997.9 rubles. They are not traded individually, lots start at 10 pieces, so the investor paid 9979 rubles. Within a month, the price rose to the face value of 1000. Income per month - 2, 1 rubles from one bond, or 21 from 10 securities.

And during this time, the investor could receive a coupon - 10, 45 rubles for a bond and 104, 5 for ten pieces.

Look for better bonds

New OFZs appear all the time, but economic conditions also change frequently. For example, OFZ 52003 was issued in August 2020 - this is the time of a low key rate in Russia, therefore the bond is not very profitable: the coupon is only 2.5%. On the other hand, in 2011 OFZ 46023 appeared with a rate of 8, 16% - at that time the key rate in Russia was higher, therefore the security turned out to be more profitable.

The maturity of the bond is also important - the longer it circulates, the more profitable it will be. For example, OFZ 53005 is designed for three years and will bring 5, 25% each, and OFZ 46020 - for as much as 30 years, and the coupon rate is 6, 9% per annum.

Save on taxes using IIS

An investor can not only buy OFZs, but put them on an individual investment account, IIA. This is a dedicated brokerage account that helps you save on taxes in two ways.

Deduction type "A" suits most people - it allows you to return up to 52,000 rubles per year, regardless of the return on investment. And if you deduct type "B", you can avoid paying 13% of income tax on transactions.

Let's say an investor opened an IIA in 2018, each year deposits 400,000 rubles on it and buys OFZs. If he picks up the bonds so that they are all redeemed in 2021, he will receive: the par value of the securities, the coupon yield on them and 156,000 rubles of tax deduction.

How not to lose money on OFZ

All calculations above are nominal yield. In reality, it will almost always be slightly lower, because there are expenses that cannot be avoided.

Distinguish the nominal rate from the effective

Bonds are a market instrument: they are traded on an exchange and their price is constantly changing. For example, the face value of OFZ 26207 is equal to a thousand rubles, but in 2019 the paper could be bought for 979.5 rubles, and in 2020 - for 1173.8.

In addition, the investor must pay the “accumulated coupon yield” to the previous owner of the security. For example, on August 16, 2021, you will have to pay 1,069.3 rubles for the bond itself and another 13.4 for coupons.

In fact, the investor will pay not a thousand rubles, but 1,082.7 rubles. Because of this, the effective yield of the security will automatically fall from 8, 15 to 6, 83%.

Take into account losses on commissions and taxes

In addition to market costs, the investor will have to take into account the broker's commission. On average, organizations charge 0.3% on each transaction. Suppose an investor bought 10 OFZ 26207 - they will cost 10,827 rubles, and taking into account the commission - 10,859.

Then you have to pay taxes - they are paid by brokers in Russia, you do not need to submit separate declarations. But real profitability is also declining. Since January 2021, all bonds in Russia are taxed on coupon income - previously, government bonds were exempted from this. At the end of 2022, the investor will receive 812.8 rubles of coupon yield. They will have to pay 13% of the tax, that is, 105, 7 rubles.

Nominally, an investor could earn 812.8 rubles only on coupon payments. In fact, he will receive 687.1 after deducting commission and tax.

What is worth remembering

1. OFZ - securities with the help of which Russia borrows money from investors. In return, she promises to pay a percentage for the use and return everything back at the agreed time.
2. There are many OFZs that differ in terms of maturity, frequency of interest payments and the size of the latter - all affect the profitability for the investor.
3. The choice of specific bonds depends on the goals, age, free money, risk tolerance and other characteristics of the investor. It is better for some to collect their own portfolio from separate OFZ issues, while others find it easier to invest in ETFs.
4. The investor can make money on coupon payments, the difference in selling and buying prices and tax breaks.
5. It is important to consider the effective yield of OFZs - market fluctuations, broker commissions and taxes can reduce the result by several percent per annum.