How to Invest in Bonds in UAE

Bonds should be part of every investing portfolio. It provides security since bond is one of the safest investment options, investing in Bonds in UAE also provides a fixed income to the bond holder as long as they hold that bond.

It might be true that you can get higher returns by investing in the stock market or mutual funds in the UAE, however, many financial advisors advocate investing a portion of your portfolio in bonds because of their low volatility compared to other investments.

What are Bonds:

Bonds – also known as fixed income, are instruments that are issued by governments or corporations to raise money for funding their operations by borrowing from investors. 

Investors who purchase a bond get interest payments during the bond’s term (or for as long as they hold the bond) at the bond’s stated interest rate. When the bond matures, the issuer pays back the bondholder the bond’s face value

How do Bonds Work:

Bond issuers create bonds and offer it to investors with certain terms. Each bond has the following three features:

Bond Value: it represents the value that bond issuer has to pay to investor at the end of the period

Maturity Date: The date that bond issuer has to pay back the bond value to the investor

Coupon Rate: The interest rate that investors will be getting regularly.

For example, company X issues a bond with a value of $1,000, maturity date is after 10 years, and coupon rate is 12% distributed monthly.

This means that the investor will have to pay $1,000 to buy that bond, and he/she will receive $10 every month (1% coupon), and then the bond issuer will return back the $1,000 to the investor after 10 years.

Why Invest in Bonds in UAE:

Bonds provide you with two benefits when you hold them as part of your portfolio.

Regular income

If you are looking for investments that generate regular cash flows, bonds give you a stream of income, it can be monthly, quarterly, semi-annually or annually, depending on the bond type. 

Portfolio Hedge

Bonds offset the volatility you might have from the other investments in your portfolio such as stocks.

What are Disadvantages of Bonds:

The disadvantages of bonds include:

Rising interest rates: Bond prices fall when interest rates are high

Credit Risk: Bonds are not risk-free. The issuer might default to pay back the bond value or delay it.

Market volatility: Investors can sell bonds in the secondary market before maturity, however, if the bond market is volatile, there is a risk that the bond value is significantly lower than the initial value when trying to sell it.

How to Invest in Bonds in UAE:

There are 3 ways to invest in bonds in UAE:

1. Invest in International Bonds from UAE
2. Invest in local National Bonds of UAE
3. Invest in Bonds ETFs

1.  Invest in International bonds from UAE

People who live in the UAE can access the US and international bonds through opening a brokerage account in one of the brokers that provide access to international bonds such as:

• Saxo bank 
• Swissquote

These platforms have a wide variety of US international bonds.On each bond, you will see the type, coupon rate and maturity date. However, there will be some bonds that require a high minimum investment starting from $10,000, but on the other hand there are many bonds that you can invest as little as $100.

2. Invest in National Bonds of UAE

National bonds are one of the safest and most affordable investment options in the UAE. The company is totally owned by the Government of Dubai.

You can buy national bonds with as little as AED 100, and by that you get ten bonds at AED 10 for each bond, or you can also get a single bond valued at 100 AED. National Bonds have multiple safe investing options, and they have delivered decent returns over the past years.

Click here to Read Everything you need to know about National Bonds of UAE

3. Invest in Bonds ETFs

Bond exchange-traded funds  are ETF that only invest in bonds. Similar to bond mutual funds, they hold a portfolio of multiple bonds with different strategies—from the U.S. Treasuries to international bonds, and different periods—between long-term and short-term.

If you want to invest in bond ETFs or any ETF, you need to open a stock brokerage account.

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Bottom Line:

It’s crucial to have bonds as part of every investing portfolio because of the security they provide and the income they generate. However, since bonds are low-risk financial instruments, they offer lower returns than stocks, so the more bonds you have in your portfolio, the lower returns you will get, but on the other hand, you will benefit from the security they provide thanks to bonds’ low fluctuation.