Permanent Interest Bearing Shares: A Comprehensive Guide to Understanding and Investing

Introduction:

Permanent interest bearing shares (PIBS) are a type of security that offers investors a regular income stream and the potential for capital appreciation. They are issued by companies and typically have a long maturity date, often ranging from 50 to 100 years. PIBS can be an attractive investment option for those seeking a steady income with the potential for growth.

Who Issues PIBS?

PIBS are issued by companies in various sectors, including banks, insurance companies, and financial institutions. The purpose of issuing PIBS is to raise capital for long-term projects or to supplement existing funding.

Characteristics of PIBS:

• Regular Income: PIBS provide a regular income stream in the form of periodic interest payments. The interest rate is typically fixed for the life of the bond, offering investors a predictable income source.
• Long Maturity: PIBS have a long maturity date, often extending beyond 50 years. This long-term nature makes them suitable for investors with a long-term investment horizon.
• Credit Risk: PIBS carry some degree of credit risk, as the issuing company may default on its interest payments or principal repayment. However, PIBS issued by well-established companies with a strong financial track record generally have a low risk of default.
• Capital Appreciation: While PIBS primarily provide regular income, they also have the potential for capital appreciation. The value of PIBS can fluctuate with market conditions, interest rates, and the financial performance of the issuing company.

Benefits of Investing in PIBS:

• Regular Income: PIBS offer a predictable income stream, which can be valuable for investors seeking financial security and stability.
• Diversification: PIBS can provide diversification to an investment portfolio, reducing overall risk. They can complement other investments such as stocks, bonds, and real estate.
• Potential for Capital Appreciation: Although the focus of PIBS is on income generation, they also have the potential for capital appreciation over the long term.
• Inflation Protection: PIBS with floating interest rates can provide some protection against inflation, as the interest payments may adjust based on the prevailing inflation rate.

Risks and Drawbacks of PIBS:

• Interest Rate Risk: Changes in interest rates can impact the value of PIBS. Rising interest rates can lead to a decline in the value of PIBS, while falling interest rates can lead to an increase in their value.
• Credit Risk: PIBS carry the risk that the issuing company may default on its interest payments or principal repayment. This risk is mitigated by investing in PIBS issued by companies with a strong financial history and credit rating.
• Liquidity Risk: PIBS are not as liquid as other types of investments such as stocks or short-term bonds. This means it may be difficult to sell PIBS quickly if you need immediate cash.
• Regulatory Risk: Changes in government regulations could impact the value or terms of PIBS.

Effective Strategies for Investing in PIBS:

• Research Issuing Companies: Conduct thorough research on the financial health, credit rating, and industry of the companies issuing PIBS you are considering.
• Diversify Your Portfolio: Allocate a portion of your investment portfolio to PIBS to reduce overall risk.
• Consider Maturity Dates: Match the maturity dates of PIBS with your investment horizon and financial goals.
• Monitor Market Conditions: Stay informed about interest rate movements, economic trends, and market volatility to make informed decisions about investing in PIBS.
• Seek Professional Advice: Consult with a financial advisor or investment professional if you need guidance and support in making investment decisions.

Tips and Tricks:

• Understand the Impact of Interest Rates: Before investing in PIBS, have a clear understanding of how changes in interest rates can affect their value.
• Set Realistic Expectations: PIBS provide regular income, but it is unlikely that you will experience significant capital appreciation in a short period.
• Monitor Credit Ratings: Regularly monitor the credit ratings of the companies issuing your PIBS to assess any changes in their financial health.
• Consider Callable PIBS: Some PIBS have a call feature, which allows the issuing company to redeem the bonds before the maturity date. This can impact your investment strategy.
• Consider Reinvesting Dividends: If the PIBS you own pay dividends, consider reinvesting them to increase your income and potentially boost your overall return.

Why PIBS Matter:

PIBS offer a unique combination of features that make them a valuable asset class for investors:

• Regular Income: PIBS provide a reliable and predictable income stream for investors seeking financial security and stability.
• Long-Term Stability: The long-term nature of PIBS makes them suitable for investors with a long-term investment horizon.
• Diversification: PIBS can help diversify an investment portfolio, reducing overall risk and improving risk-adjusted returns.
• Inflation Protection: Floating-rate PIBS can provide some protection against inflation, which is an important consideration for investors seeking to preserve the purchasing power of their investments.

Conclusion:

Permanent interest bearing shares can be an attractive investment option for investors seeking a steady income stream with the potential for capital appreciation. By understanding the characteristics, benefits, and risks of PIBS, investors can make informed decisions and develop effective strategies for investing in this asset class. It is important to conduct thorough research, diversify your portfolio, and seek professional advice when necessary to maximize the potential returns and minimize the risks associated with PIBS.

Interesting Stories

Story 1:

A wealthy investor named Mr. Smith was obsessed with finding the perfect investment. He spent countless hours researching and consulting with financial advisors, but nothing seemed to meet his demanding criteria of providing both a high income and low risk. One day, he stumbled upon permanent interest bearing shares. Intrigued by their long maturity dates and predictable income, he decided to invest a significant portion of his portfolio in PIBS. Years later, Mr. Smith retired comfortably, living off the generous income generated by his PIBS investment.

Lesson Learned: Don't be afraid to think outside the box when it comes to investing. PIBS can be a valuable asset class for investors seeking a steady income stream with reduced risk.

Story 2:

Mrs. Jones was a cautious investor who had always shied away from stocks due to their perceived volatility. However, after reading about PIBS, she realized they offered a way to gain exposure to the potential growth of the stock market while mitigating her risk. She invested a portion of her retirement savings in PIBS issued by well-established companies. Over time, she enjoyed a steady income from the interest payments and also benefited from capital appreciation as the underlying stocks performed well.

Lesson Learned: PIBS can provide a bridge between the stability of bonds and the growth potential of stocks, making them suitable for investors with various risk appetites.

Useful Tables:

Table 1: Average Returns of Permanent Interest Bearing Shares 2015-2021

Source: Bloomberg

Table 2: Comparison of PIBS with Other Fixed Income Investments

Source: Author's Analysis

Table 3: Pros and Cons of Permanent Interest Bearing Shares

Source: Author's Analysis

FAQs:

1. What is the difference between a permanent interest bearing share and a bond?

A: PIBS and bonds are both debt instruments, but PIBS have a much longer maturity date than bonds. Additionally, PIBS typically have a fixed interest rate, while bonds may have a variable interest rate.

2. Are permanent interest bearing shares safe?

A: The safety of PIBS depends on the financial health of the issuing company. However, PIBS issued by well-established companies with a strong credit rating are generally considered to be relatively safe investments.

3. How can I invest in permanent interest bearing shares?

A: PIBS can be purchased through a broker or directly from the issuing company. Investors should carefully consider their investment goals and risk tolerance before investing in PIBS.

4. What is the minimum investment for permanent interest bearing shares?

A: The minimum investment for PIBS varies depending on the issuing company and the broker used. Some PIBS may have a minimum investment as low as $1,000, while others may require a much higher minimum investment.

5. **Can I sell permanent interest