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In the world of investments, the alternatives are as varied as investor profiles. From stock markets to real estate to non-financial assets such as bonds, each option offers a different combination of risk, return and liquidity. In this article, we will focus on a lesser-known type of investment that has caught the attention of more conservative investors: bonds. Before delving into this type of investment, it is important to contextualise its growing appeal.
Non-financial investment market context
In recent years, the investment landscape has evolved significantly. While in 2023, real estate investments in Spain reached €12 billion, a part of investors have started to look at other options, such as non-financial investments, to diversify their portfolios. Among these options, investment in bonds has shown sustained growth due to their stability and security, elements that attract those who prefer to minimise risk.
According to a study carried out by Deloitte in 2022, investments in letters of credit in Latin America have grown by 15% annually in the last decade. In Colombia, for example, the market for asset-backed securities moved close to $5.2 billion in 2021. This reflects the growing demand from investors for solid assets that guarantee steady and reliable income.
With these figures in mind, it’s time to take a deeper dive into how the Libranzas work, what terms you need to understand and how you can make sure that this investment is a safe and profitable option for you.
What is a release?
A promissory note is a type of credit backed by an employee’s salary income. This type of investment allows companies to finance purchases or needs of their employees by directly discounting their salaries. In this way, the company acts as an intermediary, ensuring that the credit is repaid through automatic deductions from the worker’s salary.
Three main parts are involved in this system:
- The financial institution: It is the one who grants the credit to the employee (or ‘messenger’) so that he/she can make the purchase or request the money he/she wants.
- The employer company: It is responsible for deducting the agreed value directly from the worker’s salary, acting as guarantor of the credit.
- The worker: He/she is the one who applies for the credit and authorises the company to make the deductions from his/her salary.
The document formalising this agreement is called a ‘drawee’, which specifies the key terms of the credit:
- The amount to be deducted
- Frequency of discounts (fortnightly or monthly)
- The total term of the credit
An important detail for investors is that the promissory notes are irrevocable commitments, which means that, once signed, they cannot be cancelled unilaterally by the employee. This gives a high degree of security to the investment, as the payment flow is guaranteed until the debt is fully paid off.
Why do financial institutions sell their savings accounts?
One of the questions that may arise is why the entities that authorise these loans decide to sell them subsequently to investors. The main reason is that these institutions are limited by the capital available to authorise loans. They cannot lend more than their capital allows, so they choose to sell part of their drawings to other investors. This allows them to obtain immediate liquidity and to continue lending.
This sale benefits financial institutions in two ways:
- Quick access to cash: By selling their savings accounts, banks obtain immediate liquidity, which allows them to continue operating normally.
- Maintaining a solid reputation: By being able to continue lending, institutions project an image of reliability and stability, which enhances their position in a competitive market.
How to ensure a safe and profitable investment?
While a bond is an attractive option because of its stability, it is essential to conduct a thorough analysis before investing. This is where a team of investment experts becomes crucial. It is possible that the libranza you plan to buy has been previously acquired by a trader, i.e. a wholesale company that buys libranzas from different financial institutions. In these cases, it is necessary to verify that all legal regulations are complied with to protect your investment.
The investment in a bond is a solid alternative for those looking for a secure option with predictable income streams. Although less well known than other types of investments, its irrevocable nature and well-defined structure make it an attractive option, especially for conservative investors.
