What is the essence of OFZ-ad and other bonds with debt amortization?

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Bonds are a type of debt securities, on the basis of which the issuer undertakes to return to the investor the amount borrowed, as well as to pay a certain interest upon the expiration of a predetermined period. Purchasing bonds means that their new owner has lent money to the issuer. It should be noted that these securities are issued for a limited period.

Amortization of bonds is a gradual, with a predetermined period, payment of part of the bond's face value. It turns out that debt obligations are not repaid in full at the end of the term, but in accordance with a schedule extended over the entire circulation period. The final payment amount will be greater than the borrowed amount, taking into account the annual interest rate of the paper stated at the time of issue.

Federal loan bonds (OFZ)

OFZ are government securities issued in ruble equivalent by the Ministry of Finance of the Russian Federation. They are considered a win-win investment option for investors.

By purchasing OFZ, a citizen acts as a creditor to the second party, called the issuer. The government issues debt securities of this type to finance projects or cover debts to other creditors.

Differences between OFZ-n and other types of bonds, for example from ordinary OFZ

Unlike other federal loan bonds, OFZ-n do not take part in exchange trading. These securities can be purchased and sold only directly from the Ministry of Finance through agents: Sberbank, Promsvyazbank, VTB, Post Bank.

OFZ-n have other distinctive features:

• higher yield than OFZ-PD with an identical term (by approximately 0.5%);
• possibility of early repayment at a price not exceeding the nominal price;
• unavailability for purchase on IIS.

Attention!

OFZ-n are intended for novice investors. The procedure for purchasing securities of this type is identical to opening a deposit in a bank. There is no need to study the intricacies of exchange trading and master the terminal. Despite this, even experienced traders successfully use OFZ-n along with other investment instruments.

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Distinctive characteristics of OFZ-n from bank deposits, interest payment scheme

Unlike a deposit, funds invested in OFZ-n are subject to return in full without restrictions. This is guaranteed by the state.

Owners of bonds of this type are accrued a coupon income at the end of each half-year, the amount of which increases periodically.

Attention!

Financial income from investments in OFZ-n is higher than from a bank deposit, starting from the first year.

When opening a deposit, the agreement defines its start and end date. Interest is calculated monthly on the same day.

The date of receipt of the nominal value and interest on investments in OFZ-n is indicated in the terms of the issue of the Central Bank. It does not matter when the bond was purchased. It is important to be its owner on the day you receive funds.

Why are they being released?

Some issuers, when starting a new business or promoting an existing business, require a large sum of money, which it can only receive from investors. To raise funds, they can issue bonds for a period of, for example, five years. However, the owner of a company does not always need money for exactly five years, especially if the business is organized in such a way that profits come gradually, and there is no point in accumulating large capital in the account in order to repay the debt to the investor only at the end of the specified period.

In this case, a calculation is made of the portion of the amount that the company can regularly return to investors to pay off the debt. It should be noted that the payment schedule and their amounts are approved before amortization bonds are issued.

In fact, this option is convenient for those enterprises that understand that it will be quite difficult to collect a large amount by a specific date and it is much more convenient to allocate a certain percentage of gradually arriving income.

OFZ-n cost and accumulated coupon income

When purchasing OFZ-n, the investor pays its price and the accumulated coupon income. The first indicator is determined by multiplying the par value of the bond (for this type - 1,000 rubles) by the placement cost, expressed as a percentage. The latter is set by the Ministry of Finance on Fridays based on the next 7 days. The placement price may be lower than 100% or higher. It depends on the quotation of other types of OFZ on the stock exchange. The calculation formula is not disclosed.

The accrued income on the date of issue of the security is zero. Every day this indicator increases in an amount equal to the coupon income divided by the number of days of the period. At the time the investor receives interest, the NKD is equal to the coupon. Then this indicator is reset to zero again.

In case of early repayment of OFZ-n issues 1–3, a commission is provided in the amount of 0.5 to 1.5%.

Options for purchasing OFZ-n for the second and subsequent times

If an investor already has an open brokerage account and a securities account, purchasing securities is possible in several ways. The easiest way is to contact a bank branch. The repeat procedure will take much less time than during the initial visit.

It is possible to purchase bonds remotely. To do this, you must first transfer funds to a brokerage account.

Attention!

Difficulties often arise when directly depositing money into a brokerage account. Therefore, it is easier to first deposit funds into a bank account and then transfer them to a brokerage account using online banking. The Sberbank Online service has a limit for this transaction - no more than 500 rubles. per day.

You can also purchase bonds through the broker’s online service or mobile application.

Profitability calculation

The coupon of this type of bond is constantly changing, in addition, part of the par value may not cover every coupon payment.

This makes it very difficult to calculate the yield of such bonds. It makes sense to look at the stated annual interest rate if you buy a security on the issue day and plan to hold it until maturity. If it is already in circulation, which is most likely, then the QUIK terminal and the rusbonds website (in the “Yield” tab) will show you the calculated yield to maturity.

If you plan to buy them for a short period (relative to the life of the entire bond, for example, 2 years is also short), then you will have to carefully count each payment separately manually, adding everything up gradually to get two figures: how much you invested and how much you will receive. And from this you can calculate the annual percentage.

Amendments to the mechanism for placing OFZ 4–5 issues for citizens

There are the following innovations regarding the placement of federal loan bonds of 4–5 issues for citizens:

1. Increase in the number of agents (Promsvyazbank and Post Bank were added to Sberbank and VTB).
2. The emergence of new service points. Previously, these were offices for premium clients located in large populated areas. Now there are many branches of authorized financial institutions.
3. Cancellation of commission fees charged to individuals.
4. Lowering the limit on purchasing bonds from 30 pcs. total cost 30 thousand rubles. up to 10 pcs. total cost 10 thousand rubles.

Attention!

Today, it is possible to use federal loan bonds as collateral when applying for a loan.

How to find?

Finding depreciation bonds is not at all difficult if you use a special filter on the rusbonds website. But in order to view information about issuers and the coupon payout table, you will have to register. If you need information on OFZ-AD, then we have prepared for you a small list of securities in circulation. You can study the features of their coupon payments yourself in the “Coupons” tab.

Now we’ll show you how to find them using the above-mentioned filter.

In the screenshot, the rusbonds website filter is configured for municipal bonds with amortization

Please note that the site has a special convenient filter called “depreciation”. In addition, it is convenient to look by sector, you can select only government ones, and we will get a few OFZ-AD, but if you choose municipal or corporate, then you will have plenty to choose from. There are many of them produced. Also remember to put in the filter only those papers that are “in circulation”.