Investing in Bonds in South Africa

When you hear about investing, you are probably thinking of property investing, share investing, ETFs, Cryptocurrency, and maybe even online trading. However, few of you will mention or think of Bonds. Bonds are a type of investment often looked at as a side or complementary investment. But what are bonds are how can you invest in them?

What are Bonds?

Bonds are a type of debt vehicle that allows investors to earn via interest over a period of time. While bond prices do change slightly in the open market, they are a lot more stable than other investments such as equities.

Many investors often consider bonds to be “safer” and more stable than other investments as they are less affected by market conditions. To lower their risk of the funds, fund managers of bond funds invest in bonds with good ratings. These bonds are backed by governments or big corporates.

Through equity and multi-asset funds, you are likely are invested in bonds. Fund managers include bonds in equity funds to bring some stability and diversification to the fund.

Now that we know what bonds are, where can you invest in bonds?

Investing in Government Bonds in South Africa

Investing in bonds with good ratings that are backed by big corporates or governments is commonly what is available to investors. Governments bonds are some of the most popular. In South Africa, our government bonds are called RSA Retail Bonds and are purchased directly from the RSA Retail Bonds website.

RSA Retail Bonds are a great to invest in government bonds in South Africa. The current RSA Retail Bond rates are as follows:

Fixed Rates:

2 Year6.5%
3 Year7.5%
5 Year9%

Inflation-Linked Rates:

3 YearCPI+2.25%
5 YearCPI+2.75%
10 YearCPI+4%

These rates were taken on 31 October 2021, for the latest up-to-date rates please see here.

Bond Funds

Another option for you to invest in bonds is through a dedicated bond fund. All the top asset managers have bond funds including the likes of Coronation, Allan Gray, and Nedbank. These funds can offer easy and diversified access to the bond markets. The funds are all managed by portfolio managers who invest in a number of bonds with aim of producing above-average returns.

Bonds funds mean less management for you and can be a great option for long term investments.

Are Bond Funds Right for You?

Bond funds can offer good returns for a lower perceived risk than those seen in the equity markets. Many advisors recommend bond funds have an investment timeline of around 5 years, however, this does vary from fund to fund.

A financial advisor can help you to find out if RSA Retail Bonds or Bond funds are suited to your investment needs and goals. Financial Advisors are trained professionals who are qualified and licensed to help you make investment decisions.