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Invest in Brazilian government bonds
Suitable for retail investors
As a Brazilian visa holder I am entitled to invest Brazilian government trough Tesouro Direto via my bank HSBC Brazil.
The Selic interest rate is used as a benchmark for financial transactions between banks and between government and investors. When it increases it raises the overall profitability of fixed income products, including the federal securities that comprise the so-called Treasury Direct.
In the following I will explain how to invest in Treasury Direct.
The minimum amount that can be invested is 0.2 bonds. In financial terms, this fraction is around BRL180.00. The maximum value that can be invested is BRL 400 000 per month.
There are four bond titles available and their types vary according to the investor's profile and investment time (short and medium term). For short-term investments the options include LFT (Lyrics Fiananceira Treasury) and LTN (National Treasury Bills). For the medium term are available NTN-B (National Treasury Notes Series B) and NTN-F (National Treasury Notes Series F).
The characteristics of each title are:
Financial Treasury Bills (LFT): It is a title with a return linked to the daily base rate of the economy (Selic). The redemption of principal and interest of the bond occurs at maturity. These titles are suitable for conservative investors, and requires attention to the Selic rate fluctuation;
National Treasury Bills (LTN): It is a title with profitability defined at the time of purchase, the value is redeemed at maturity. Each title is purchased at a discount and has a redemption value of BRL 1000.00 . These titles are suitable for less conservative investors who believes that the fixed rate will be higher than the Selic expected in the future. The yield is nominal, and the investor may have net return very low (even negative) if inflation rise;
National Treasury Notes - Series B (NTN-B): It is a title with the return linked to the IPCA (Consumer Price Index), with interest set at the time of purchase. The interest payment is semi-annual and the face value of the redemption value occurs at maturity. These titles are suitable for conservative investors, as they ensure profitability and real possibility of periodic income stream (semiannual coupons). These titles are highly recommended for retirement and medium-term goals;
NTN-B Principal: It is a title with the return linked to the IPCA (Consumer Price Index), with interest set at the time of purchase. There is no payment of semiannual interest coupon and the redemption of the nominal value occurs at the maturity date of the title. These titles are suitable for the conservative investor, and provides real profitability is more practical than the NTN-B because its calculation is simplified compared to the NTN-B. The NTN-B Principal requires no need for reinvestment (not pay interest semi-annually), with a future payment date as the investor's sole concern.
The custody fee for bond purchases is 0.4% per annum on the purchase price, and is related to the securities custody services, balances and movement of investors. Moreover, there is a fee charged by Escrow Agent (the bank or broker you chose to register) ranging from 0% to 4.5% per year. The average is 0.3% per year. Therefore, applying directly to federal securities you will have an average cost of 0.7% per year, much lower than the percentage management fee commonly charged in conservative fixed income funds (whose portfolio consists largely of government bonds). The Treasury Direct website has a section with the updated ranking of Custody Agents, where you can check the fee for each agent.
The rule for tax is the same used in the fixed income funds:
I - 22.5% in investments with maturities of up to 180 (one hundred eighty) days;
II - 20% in investments with a maturity of 181 (one hundred eighty-one) days to 360 (three hundred sixty) days;
III - 17.5% in investments with a maturity of 361 (three hundred sixty-one) days to 720 (seven hundred and twenty) days;
IV - 15% in investments with a maturity of more than 720 (seven hundred and twenty) days.