There are three main routes into bonds: buying an individual bond directly through a broker, buying into a fund that holds many bonds, or buying a secured crowdlending claim that pays a comparable income stream through a different structure. Each route differs in minimum size, who selects the credit, and how you exit before maturity.
How to Invest in Bonds: Routes, Costs, and Trade-Offs
How Do Bonds Work in Practice?
Bonds are the instruments that let the investor lend capital to the state or a state-run company on purchase. In return, the issuer is normally obligated to make scheduled interest payments and then, after the claim has reached maturity, repay it.
The result is dependent on the process that is happening after the purchase. Once the investor holds a bond until maturity, it becomes dependent on the issuer, who needs to meet an obligation. The experience of an investor who is trying to exit earlier by selling the claim on the market.
This becomes a difference when you try to consider how the investment in bonds should occur. The movement of the market bond does not make the credit change; in fact, it can remain static. Conversely, an instrument that does not have a price that is quoted as such sometimes has a price that can be resilient to market volatility.
How to Invest in Bonds: The Main Routes
Fixed-income and fixed-income-style cash flows can be obtained via different means, and sometimes, the investor may not maintain complete control over the assets.
How do you actually buy a bond?
To buy a bond directly, the investor needs to have access to a broker or an investment fund that can offer the possibility of purchasing the bond. When the investor wants to purchase a bond, they need to select either a corporate or an individual government one. Upon purchase, the bond may be held until maturity.
If the investor has direct ownership of the bond, it can provide control over maturity and the issuer. Yet, in case bonds are denominated and thus have a large value, the portfolio‘s diversification can become a very hard quest.
Should you buy individual bonds or a bond fund?
The investor may choose to purchase a unit to include it in a collective portfolio instead of buying an individual bond. The index methodology may determine exactly how an investment fund would hold the bonds, but it cannot guarantee shaping the impact this or that asset has on a portfolio.
If the investor decides to do it through an investment fund, it will not normally determine which individual can credit or leave the portfolio because this becomes a trade-off. The investor‘s return would also depend on the fund‘s value since the volume of the returns may be tied to the fund‘s overall performance and market price.
Another route of acquiring bonds for the investor is secured crowdlending. An investor in this case would fund a business loan instead of purchasing a tradable asset. Maclear as a crowdfunding platform, allows the investors to purchase individual bonds through giving private loans to the SMEs.
What is the minimum to invest in bonds?
The investment minimum varies considerably and depends on the platform. For Maclear, a minimum for the claim is €50 if the investor wants to purchase a crowdlending claim. A lower minimum on the claim does not equal lower investment risk. Therefore, the investor should understand that even investing in the smaller claims would entail risk to the capital.
Routes to the Same Kind of Cash Flow, Compared
All three routes can let the investor claim bonds as an asset, yet the pathway and the requirements differ. The table below summarizes the routes.
| Route | Typical minimum | Who selects the individual credit | Where the price comes from | Exit before maturity | Return metric |
|---|---|---|---|---|---|
| Individual bond bought directly | Depends on bond denomination | Investor | Primary issue price or secondary bond market | Sale on the secondary market | Coupon and YTM |
| Collective instrument through a bond fund | Usually relatively low, dependent on the provider | Fund manager or index methodology | Fund NAV or market price | Sale or redemption of fund units | Fund return and yield metrics |
| Secured crowdlending claim | From €50 under relevant Maclear mechanics | Investor, or automated selection where available | Principal value with no continuous exchange quotation | Secondary market, sale is not guaranteed | AROI |
General information, not investment advice. Each row is one property seen from two sides, not two separate lists — capital is at risk in every case.
Bond Price Behaviour vs. a Claim With No Daily Quote
A secured crowdlending claim is not a tradable bond: it has no daily market price, and any exit before maturity depends on the Secondary Market, where a sale is never guaranteed and may only happen at a discount of up to 50%.
A listed bond has a market price before maturity. If the investor, supposedly, purchases a bond with a value of €100, the market price may be lower or higher than the purchase price. The bond issued before may have a lower value, and this is a normal part of market price fluctuation on the bonds as assets. Likewise, credit obligations and liquidity may affect the market price of the asset.
Crowdlending that is secured behaves differently as the claims are not typically listed on the market on a daily basis. The loan remains until the claim reaches maturity and the principal is repaid in full. Until then, the investor accrues interest by receiving fixed monthly payments.
However, even though the fluctuation of the market price does not exist, the volatility and risk are not reduced. Volatility in secured crowdlending comes from the fluctuation of the market price of the collateral that is pledged against the loan. The risk comes from the borrower’s financial position. Liquidity risk also remains, as secured crowdlending claims typically do not have an early exit. If the investor wants to sell the claim, they can only do so on the Secondary Market with a seller’s fee and a discount.
In order to calculate the expected returns, Maclear uses the AROI, or Annualized Return on Investment, metric. Its formula is:
AROI = (Expected Earnings / Remaining Period) * (365 / Principal Purchased)
AROI is used to calculate expected earnings and is not equivalent to counting guaranteed returns.
How do you get your money back before maturity?
If the investor wants to sell the claim early, they can do so in the Secondary Market. The sale depends on the demand from other investors. If the sale is successful, Maclear will retain a 2.5% seller fee, and the investor who has bought the claim will have a 30-day lock-up period. If the listing remains unsold in 14 days or more, it is automatically removed from the market.
How to Actually Choose a Route
The route depends on the goals of the investor, the status of the current portfolio, and the perceived risk profile. The investor who wants a higher return may choose a crowdlending platform and purchase a claim. Someone who wants higher liquidity may opt for bonds. Choosing an appropriate route is also a matter of personal preference. Some investors may simply be more comfortable retaining ownership of their assets, while the others may be willing to wait until the claim‘s maturity.
When Each Route Makes Less Sense
Occasionally, an individual route may become less attractive. For example, if we take individual bonds, these can become encumbered assets in case the diversification becomes pricier than the yield from the portfolio because of a denomination. If the investor wants to purchase the assets through bond funds, these may become less suitable if the investor wants to opt for the personal selection of the borrower and wants to see the issuer‘s personality.
If the investor wants to see daily price fluctuations and have the option to get earlier liquidity, then secured crowdlending will likely be less attractive. Although the investor may try to sell the claim on the Secondary Market, the outcome is not guaranteed.
FAQ
How do you actually buy a bond?
You can buy a bond by directly purchasing it through the broker‘s account when it first enters the market or on the Secondary Market when the price for a claim changes in real time and depends on demand.
What is the minimum amount to invest in bonds?
The minimum amount that an investor needs to invest in a bond depends on the route they have chosen. Individual obligation may typically require thousands of euros in currency; buying bonds through a fund may be lower depending on the part of the claim that the investor tries to buy. Secured crowdlending claims start from €50 per claim.
Should you buy individual bonds or a bond fund?
There is not a universal answer to whether an investor should buy individual bonds or a bond fund. Individual bonds give the owner control over the issuer and the terms of the claim. A bond fund can, in turn, give the investor the diversification of the portfolio. The ultimate choice depends on the ability and willingness of the investor to analyze the issuers themselves.
How do you get your money back before maturity?
If the investor wants to get money back before maturity, they can sell the claim on the Secondary Market for the current price, higher or lower than it. Early exit is only possible through the Secondary Market. If the investor decides to sell the claim, they will have to give a 2.5% seller fee if they successfully sell the claim. The buyer gets a 30-day lock-up period.
Does the absence of a market price mean lower risk?
No, the absence of a market price does not mean lower risk. The claim is not reassessed daily, but the credit risk of the borrower and liquidity risk remain. The tool is constructed differently, but it does not equal lower risk.
About Maclear
Maclear AG is a Swiss peer-to-peer (P2P) lending and crowdlending platform, headquartered in Switzerland. The company acts as a financial intermediary in the non-banking sector and is a member of PolyReg SRO, in accordance with Swiss financial regulations, particularly regarding AML, KYC, and GDPR. Maclear provides individual and qualified investors access to carefully selected business loan opportunities, with integrated risk assessment, a Provision Fund, and a Secondary Market for liquidity.
The content of this article is provided for informational and educational purposes only. It does not constitute investment, financial, tax, or legal advice. Peer-to-peer (P2P) lending and crowdlending investments carry a risk of partial or total loss of capital. Past performance does not predict future results. Liquidity on a secondary market is not guaranteed. Readers are encouraged to conduct their own research and consult qualified advisors before making any financial decisions. The availability of products and services may be restricted in certain jurisdictions.