Source: Ministry of Finance, Invensting.ru
When the question arises about the need to invest money in zero risk (for example, to temporarily “park” money), two ideas usually come to mind – to open a deposit or buy on the OFZ market. Ordinary OFZs can hardly be called a complete analogue of deposits in terms of both risks and profitability: short issues will not bring returns higher than deposits, and for long issues volatility can “eat up” the premium in relation to deposit rates. However, there is one instrument for individuals that can overcome these negative effects – “people’s” OFZ (OFZ-n).
This instrument is not so well known to trading investors in the market: there are no secondary trading in OFZ-n. The Ministry of Finance, with the help of four intermediary banks (Sberbank, VTB, PSB and Pochta-Bank), sells and redeems these bonds from citizens at their request. “People’s” OFZs also differ greatly in terms of circulation and have the following characteristics.
OFZ-n characteristics (on the example of the three-year OFZ-n 53006)
Placement price – is determined by the Ministry of Finance for the week ahead every Friday and published on the website of the Ministry. Depending on the prices of ordinary OFZs, the placement price is calculated in such a way as to give a premium to the yield in relation to ordinary OFZs (in reality, it is comparable to the yields of 5-year OFZs). Now, for OFZ-n 53006, the placement price is 98.3% -98.5% of the nominal with a yield to maturity of 5.77% -5.78%.
Coupon yield – coupon payment is made every six months. The OFZ-n stipulates in advance the coupon size for each of the coupon payments. For OFZ-n 53006 (the sixth issue currently being placed), the following values are determined: 1st coupon – 4.1% per annum, 2nd coupon – 4.4% per annum, 3rd coupon – 4.7% per annum, 4th coupon – 5% per annum , 5th coupon – 5.3% per annum, 6th coupon – 5.73% per annum
Accumulated coupon yield – is also calculated in advance for each purchase / sale price. It will need to be paid upon purchase. If the bond is sold during the first 12 months of ownership, the paid and accumulated coupon yield for the current coupon period will be lost (or netted). If more, then the NKD will be paid.
Redemption (sale) of bonds – you can sell OFZ-n at any time. In this case, the redemption price is equal to the purchase price, but not higher than the face value. This is the most useful property of a security over all other types of OFZs – a guaranteed zero volatility of the bond’s body if the securities are bought at a discount. In reality, all “popular” OFZs are placed at a discount.
Placement volume – in the issue of OFZ-n 53006 being placed now, the established placement limit is 15 billion rubles, of which 10.7 billion have already been purchased. As such, bookbuilding for OFZ-n does not exist, all applications are satisfied in full within the limit of 15 million rubles per individual. The demand for these securities is evenly distributed, but in the dynamics of placement one can notice the efforts of banks to “shift” deposits to this type of OFZ this year.
The volume of OFZ-n 53006 placement (in million rubles)
Yield to maturity – is calculated as in other securities, but does not change over time. However, upon early redemption of the security, it is, in fact, transformed into the received coupon yield.
Denomination and minimum purchase amount of securities – one OFZ-n is sold with a par value of 1,000 rubles with a minimum lot of 10 securities (i.e. 10,000 rubles at par)
Purchase and sale of OFZ-n – You can buy securities through the brokerage accounts of the above four banks. This can also be done through the mobile applications of brokers, depending on the rules of each bank. You can sell them in the same way.
- For new (fifth and sixth) OFZ-n issues, when purchasing securities, no commission is charged for purchasing and selling bonds
- In 2020, the Ministry of Finance made a decision that the owners of OFZ-n would receive an additional premium, which would offset the cost of paying tax on coupon income on paper. Thus, although the coupon will be subject to 13% personal income tax under the new rules, the real profitability will not decrease due to this tax.
- A useful feature for long-term holders of OFZ-n can be the ability to take out a loan secured by these bonds
Comparing OFZ-n with other options for maximally risk-free money “parking”, now it is difficult to find a more successful instrument for this. Zero market risk distinguishes it from OFZ, and the absence of taxation and higher rates from deposits.
More broadly, the absence of the risk of a price drawdown will look good in times of serious market volatility, when all other securities, including OFZs, will fall in price.