Proxy of bonds
The table below summarized information about bonds and other alternatives such as term deposits, funds and stocks. Although these products are different in nature, you can learn about similarities and differences between bonds and these alternatives to help you determine whether bonds fit your investment objectives and risk profile.
| Term Deposits | Bonds | Funds (e.g. Bond Funds (Note 1)) |
Listed Stocks | |
|---|---|---|---|---|
| Issuer | Banks and deposit-taking companies | Governments, banks and corporations | Fund houses and asset management companies | Listed companies |
| Access to new issues | Set up new time deposit during business hours | Offered through public offerings or private placements | Subscribe funds through their distributors | Offered through public offerings or private placements |
| Investment period | Fixed deposit periods. Early withdrawal may incur penalties | Generally fixed unless otherwise specified (e.g. convertible and callable bonds) | Flexible | Flexible |
| Investor compensation | Protected under the HKSAR Government's Deposit Protection Scheme. The maximum protection amount per person per institution will be HK$500,000 or its equivalent (with effect from 1 October 2024, the protection limit will be increased to HK$800,000). (Note 2) | If the bond or bond fund is not listed on the Stock Exchange of Hong Kong, investors are not covered under the Investor Compensation Fund under Securities & Futures Ordinance (SFO) (Note 3) | Stocks investors are convered under the Investor Compensation Fund under the SFO on defined conditions (Note 3) | |
| Income stream | Regular interest payments | Regular interest payments unless otherwise specified (e.g. zero coupon bonds and floating rate bonds) | Some funds pay dividends to investors while some do not. Further, dividends may be distributed out of capital resulting in a reduction in net asset value of the fund | Dividend payment is not fixed and whether a dividend is paid is the commercial decision of a listed company |
| Secondary market | None. Early withdrawal may incur penalties | Yes, but relatively inactive | For unlisted funds, redeem the funds through the distributors | Yes, but the stock may not be actively traded on the exchange |
| Fees and charges | Bank charges may be incurred in case of early withdrawal | Transaction fees Custodian fees | Vary among funds. Investors may have to pay fees such as subscription fees, switching fees and redemption fees when dealing in the units. Also, expenses such as management fees, custodian/trustee fees, administrative fees and performance fees may be deducted from the net assets of the fund. | Transaction fees Custodian fees Stamp duty |
Note 1: Bond funds are primarily unlisted. The focus of the following discussion is on unlisted bond funds.
Note 2: Structured deposits are not protected by the Deposit Protection Scheme. Please visit the Hong Kong Deposit Protection Board website (dps.org.hk) for details.
Note 3: For the eligibility of the Investor Compensation Fund, please visit the Investor Compensation Company Limited website (hkicc.org.hk) for details.
