Chapter 1

Introduction to Fixed Income Investment

Investment Risk Levels
Cryptocurrency

High-risk market with potential for

Derivatives both profit and loss.

“High Stocks High returns, but high risk as well.

Risk Mutual Funds Risk depends on the asset invested in.
High Corporate Bonds
Issued by private entities,
leading to higher default risk.
Return” Government Bonds
Issued by the government,
with a lower risk of default.
High security,
Bank Deposits
but low returns.
Source: Wealth Me Up รวบรวมโดย ธปท.
 Example: a new bond issuance offer

Source: ThaiBMA
Differences between Bond and Equity Instruments

The differences between Bond and Equity Instruments

• Form of return
• Claims rights
• Holding period
• Risk and return
• Liquidity
 Bond
A type of financial instrument in which investors in the bond hold the status of a “creditor”,
while the issuer of the bond holds the status of a “debtor”.
ผูRŒ esponsibilities of the issuer ผูRŒ esponsibilities of the bondholder

• Corporate Bonds
• Treasury Bills
Issuer • Government Bondholder
Bonds

Interest

Principal + Interest

Source: https://www.blogtradehoon.com/
 Equity Instruments
Equity instruments are financial instruments issued by a business or company to raise capital for its
operations. Investors who purchase these instruments acquire the status of “owners of the business”.
Shares
Issue equity Purchase equity
securities securities

Ownership rights
Pay Receive
dividends dividends

Issuer Dividends Holder of securities

Receive payment Pay for equity

for equity securities Value of equity securities

Source: https://www.blogtradehoon.com/ securities

Mutual Fund
What is Mutual Fund? Classification of mutual funds based on their
underlying asset allocation.
It refers to pooling the funds of individual investors into a larger
sum, where a mutual fund management company (Asset
Management Company) invests the money to generate returns
and distributes the profits back to the investors.

Who is suitable for Mutual Fund?

People with People with Beginner Investors seeking higher

limited funds limited time investors returns than savings accounts.

Source: ทันข่าว The Series Source: https://www.gpf.or.th/

Differences between Bond and Equity Instruments
A “bond” is classified as a debt instrument. The holder of the instrument or investor holds the status of a “creditor”. The returns are consistent
and guaranteed, in the form of interest, throughout the term as specified in the terms and conditions. The risk depends on the credit rating of
the issuer, which reflects the strength of the company and its ability to repay both interest and principal.

“Shares” are classified as equity instruments. The holder of the instrument or investor holds the status of a “shareholder” or “co-owner” in the
company. The returns are not guaranteed, and include both capital gains, which are subject to daily fluctuations in share prices (with potential
for either profit or loss), and dividend yield, which vary depending on the company's profits.

"Another key difference between bond and equity instruments is that in the case where the issuer of the instrument is unable to continue
operations and is in a state of bankruptcy, the rights to claim the company's assets will differ. Bond holders, who are creditors, have the right
to claim damages before equity holders, who are shareholders, whether common or preferred shareholders.
In summary:
A “bond” is an investment in the form of “lending money” (the investor is a creditor) with guaranteed returns.
A “share” is an investment in the form of “becoming a shareholder” with uncertain returns."
A private company issuing bond will have a lower cost of debt compared to the cost of equity from common shares, and it can deduct the
interest paid to bondholders from its taxable income.
Source: Thaibma
Differences between Debt and Equity Instruments

Debt Equity
Investor status Creditor Owner
Investment benefits Fixed payments regardless of Dividends depend on
performance performance
Maturity of debt securities Has a maturity date No maturity date
Transfer of ownership/trading Yes Yes

Source: Thaibma
Summary of differences between stocks and bonds

Summary of the differences between equity (equity securities) and bonds (debt securities)
Equity Security Debt Security
Investor status Shareholder Creditor
Maturity No fixed maturity Fixed maturity date
Return Dividends Interest payments
Claim on assets in bankruptcy Subordinate to debt holders Senior to equity holders
Examples Common stock, Preferred stock Bonds, Debentures, Bills
Source: ThaiBMA
Size of the Thai bond market
Proportion of different types of Bond in the Thai bond market

Unit: Trillion Baht Proportion of the Thai bond market

20
18
17.15T
14.80T 16.51T
16 13.98T 15.66T 1.13
1.16
13.33T 1.13
14 12.60T 1.09
4.62
11.41T 1
12 10.89T 0.91
0.97
3.93
4.36
4.75
The outstanding value of the Thai bond
0.96 3.59
10 0.84 3.35 3.67
2.23
2.35 market increased by 3.9% in the first
2.84 2.98 2.4
8
3.72
3.37
2.9
three quarters of 2024, mainly driven
3.48
6 3.14 3.04
9.02
by government bonds.
4 7.77 8.4
6.02 6.88
2 4.07 4.43 4.86 4.97

0
2016 2017 2018 2019 2020 2021 2022 2023 Q3 2024
Government Bond BOT Bond Corporate Bond SOE Bond & Baht Bond
What is a Bond?
Debenture
A bond is a type of financial instrument thatg.is classified as a debt instrument.
It is commonly used for fundraising by companies, governments, and other entities. It is
issued in the form of a loan, where the issuer of the bond has a legal obligation to pay
periodic interest payments and repay the principal amount when the bond reaches
maturity.
Examples of commonly found Bond

A fixed interest rate bond is a bond that pays interest at a fixed rate as specified at the time
of issuance, and continues to do so until the bond matures.
In Thailand, both government bonds and corporate debt securities mostly have this type of
interest payment structure.

For example, Company A issues a 5-year bond with a 5% annual interest payment, and a par value of
1,000 baht. 100000%

Price 50 50 50 50 Par Value +50

Initial rake
 Example: a new bond issuance offer

Source: ThaiBMA
Components of a Bond
Par value is the principal amount that the issuer of a bond agrees to repay to the bondholder when the
bond reaches maturity. Typically, the par value of most bond is set at 1,000 baht per unit.

The coupon rate is the interest rate that the issuer of a bond agrees to pay to the bondholder according
to the specified schedule throughout the life of the bond. It can be set as either a “fixed interest rate” or
a “floating interest rate”. The interest received is calculated by multiplying the coupon rate by the par
value. TaroomÉU

Coupon frequency refers to the number of interest payments made per year, such as paying every 6
months (2 times per year), or quarterly (4 times per year), etc. Most bond in the market, especially
government bonds, typically pay interest every 6 months.
Components of a Bond
Issue Date refers to the date on which the bond are offered for sale.

Maturity Date refers to the date when the bond matures, and the issuer must repay the principal
amount and the final interest payment (if any) to the bondholders.

Issue Term/Tenor refers to the duration of the bond, which can be either short-term or long-term.
For government bond, the term is categorized based on 365 days. If the term is no more than 365
days, it is considered a short-term bond. If the term is longer than 365 days, it is considered a long-
term bond. For corporate bond, the term is categorized based on 270 days. If the term is no more
than 270 days, it is considered a short-term bond. If the term is longer than 270 days, it is
considered a long-term bond.
Components of a Bond
Issuer Name refers to the entity that issues the bond. There are generally two main categories:
government and private sector.

Type refers to the classification of the bond, such as secured/unsecured bonds, subordinated/non-
subordinated bonds, etc.

Credit Rating is information that reflects the assessment of the issuer's ability to repay debt. A higher
credit rating indicates higher safety, meaning a lower risk of not receiving the principal repayment.
This rating is based on the issuer's financial history and debt repayment capability, and it is evaluated
by credit rating agencies.
Components of a Bond
Options refer to special rights granted to either the issuer or the bondholder, allowing them the choice
to act according to certain terms or not. For example, the issuer may have the right to call the bond
before maturity (Call option), the bondholder may have the right to sell the bond back before maturity
(Put option), or the bondholder may have the right to convert the bond into equity (Convert option), etc.

Covenants are conditions that the bond issuer must either comply with (affirmative covenants) or
refrain from (negative covenants) in order to protect the interests of the bondholders. For example, the
issuer may be required to maintain a certain debt-to-equity ratio and not exceed the specified limit.
Key characteristics of a Bond
Fixed Interest: A bond pays interest to investors regularly, often referred to as a “coupon”, which is
paid at specified intervals, such as quarterly, semi-annually, or annually.

Repayment of Principal: Upon maturity, the issuer of the bond repays the principal amount to the
investor, guaranteeing that the investor will receive their initial investment back (unless the issuer
defaults on the payment).

Lower Risk: Investing in bond is typically less volatile than investing in stocks. Most bonds are often
backed by the government or corporations, providing more stability, although they are not entirely
risk-free
Q&A