What Is it a capitalization bond? Understand how this form of investment works!

Capitalization bonds have become an increasingly popular alternative in the financial world, offering a unique combination of investment and prize draw.

With this option, you can not only withdraw your invested money with interest, but also receive various benefits, such as prizes raffled off by the company. This has become increasingly popular.

In this article, we'll explore in depth what a capitalization bond is, how it works, and the dynamics behind the associated payments.

Follow this article to learn everything you need to know about capitalization bonds.

What is a capitalization bond?

The capitalization bond is a financial product offered by various institutions, such as banks and insurance companies.

It works like a combination of investment and prize draw. When purchasing a capitalization bond, the individual agrees to make monthly deposits for a predetermined period.

These deposits form a total amount that can be withdrawn at the end of the contracted term. Besides the investment aspect, the capitalization bond has an additional attraction: participation in periodic drawings.

Customers compete for cash or property prizes, and winners are chosen at random.

The idea behind capitalization bonds is to provide a savings alternative that combines profitability with a dose of excitement associated with sweepstakes. This sets them apart from other, more traditional investment options.

How does the capitalization bond work?

The capitalization bond works as a type of investment that combines features of programmed savings and sweepstakes.

It all starts with the Bond Acquisition. The interested party purchases a capitalization bond from a financial institution, such as a bank or insurance company.

At the time of purchase, the contractual conditions are established, including the amount of monthly deposits, the investment term and the rules of the draws.

From then on, monthly deposits are made as stipulated in the contract. These deposits accumulate over the contract period, forming a total amount that will be used to calculate the financial return.

Money deposited monthly may earn interest or be adjusted according to previously determined indexes.

Alongside deposits and earnings, the cardholder participates in periodic drawings. A portion of the accumulated amount goes toward these drawings, where winners have the chance to receive cash or property prizes.

At the end of the contracted period, the holder has the right to redeem the total amount invested, which includes both monthly deposits and the income obtained.

This redemption is usually guaranteed, providing the investor with a return on the invested capital.

Some capitalization bond policies allow early redemption, but it is important to check the contractual conditions, as there may be penalties or loss of part of the income.

It is worth remembering that contractual conditions may vary between financial institutions, including rates, terms, drawing criteria, and penalties.

How is the capitalization bond paid?

There are different payment options for capitalization bonds. You should discuss these options with the company providing the bond.

A lump sum payment (PU) occurs when the investor makes a single deposit, contributing the full value of the security at once. This option is chosen by those who prefer to make the full investment without subsequent monthly disbursements.

Monthly payment (PM) is the most common option, where the holder authorizes a monthly deduction of the security's value directly from their checking or savings account. This option offers convenience and financial discipline, and is preferred by investors seeking regular deposits throughout the contracted term.

The periodic payment (PP) option provides investors with flexibility in choosing the frequency of deposits. This option allows the holder to adjust payments according to their preferences and needs, adapting to their financial profile.

Regardless of the chosen modality, it is important to highlight that the cost of premiums, administrative expenses and profitability linked to the Reference Rate (TR) are elements present in all forms of payment.

Profitability, applied only to a portion of the total amount invested, lends a specific dynamic to the security's appreciation. Understanding these aspects is crucial for investors to make informed choices aligned with their financial expectations.

What is the profitability of capitalization bonds?

The yield on capitalization bonds is typically low. Typically, it's between 3% and 5% per year, but it can be even lower depending on the type of bond and the rates charged.

The profitability of capitalization bonds is composed of two factors:

• The update rate: This is the rate that adjusts the security's value over time. It is usually tied to the Reference Rate (TR), but it can also be fixed or tied to another index.
• Interest rate: This is the rate at which the deposited amount is remunerated. It can be fixed or variable and is defined in the security contract.

For example, a capitalization bond with a nominal value of R$ 1,000.00, an annual update rate of 4%, and an annual interest rate of 2% will yield R$ 44.00 in the first year. At the end of the second year, the bond's value will be R$ 1,044.00.

It's important to note that, in some capitalization bonds, the deposited amount isn't fully remunerated. A portion of the amount is allocated to prizes, which are raffled among participants. In these cases, the bond's profitability may be even lower.

Therefore, before investing in a capitalization bond, it is important to compare the rates and conditions offered by different financial institutions.

How to invest in capitalization bonds?

Investing in savings bonds involves a series of steps that must be carefully considered to make informed financial decisions.

First and foremost, it's crucial to select the type of bond that best aligns with your financial needs and goals. There are two main categories of capitalization bonds:

• Titles with Draw: The amount invested is divided between correction by the update rate and the reserve for prizes drawn among participants.
• Titles without Draw: The entire amount invested is adjusted by the update rate.

In addition, there are subdivisions that consider aspects such as early redemption, daily liquidity and guarantee by the Credit Guarantee Fund (FGC).

To choose the most suitable type of security, it is important to evaluate your investment objective, investor profile and desired term.

Before purchasing a bond, it's essential to compare the rates and conditions offered by different financial institutions. Factors such as the update rate, interest rate, premium amount, term, loading fee, and drawing fee should be carefully analyzed.

This comparison can be done online or at bank branches, allowing you to identify the most advantageous offer for your needs.

Finally, the hiring process can be completed in person at a bank branch or online. Identification documents and proof of residence are generally required for in-person hiring, while an online form must be completed for virtual hiring.

Upon finalizing the contract, you will be provided with a contract. It is extremely important to read all the terms and conditions carefully before signing to avoid future surprises.

What are the risks of investing in capitalization bonds?

The best capitalization bonds are those that offer the best combination of profitability, liquidity, security and cost.

• Profitability: The profitability of capitalization bonds is generally low, but can vary depending on the type of bond and the rates charged.
• Liquidity: Capitalization bonds usually have a redemption period, which can be a few months or years. If you need to redeem your bond before the deadline, you may have to pay a penalty.
• Security: Capitalization bonds are not guaranteed by the Credit Guarantee Fund (FGC). This means that if the financial institution goes bankrupt, you could lose all your investment.
• Cost: Capitalization bonds often charge fees, such as loading fees and drawing fees. These fees can reduce the bond's profitability.

See a list of capitalization bonds that are worth investing in:

Ourocap capitalization bond

Ourocap is a product offered by Banco do Brasil. It offers interested parties two options for acquisition: a single payment or monthly installments.

In the single capitalization option, the buyer makes a single payment of R$ 1 thousand or R$ 2 thousand and competes for prizes that can reach up to R$ 2 million.

For those who prefer a capitalization bond with monthly payments, plans start at R$$ 50.00, with the option of repayment over up to 60 months. Prizes range from R$$ 900.00 to a whopping R$10 million, and are awarded through monthly drawings.

At the end of the plan's validity period, the buyer receives the amount invested, duly updated by the Reference Rate (TR).

Pic Itaú capitalization bond

Promoted by Banco Itaú, Pic Itaú promotes special biweekly, monthly and annual draws, giving participants of its capitalization bond the chance to compete for prizes that can reach up to R$1,400,000.

Holders must make monthly payments and can purchase the title for amounts ranging from R$ 30.00 to R$ 90.00.

Upon completing the 48 months of the plan's validity, you have the possibility to redeem the full amount invested.

SuperXCap capitalization bond

Caixa Federal also brings its capitalization bonds to the market, such as SuperXCap.

With installments starting at R$ 30.00 and weekly draws on 60-month plans, this title provides an engaging experience for participants.

In addition to the prizes drawn, participants have access to the “Scratch Card with Instant Prizes”, which awards amounts ranging from R$ 60.00 to R$ 1,200.00.

SuperXCap is available for purchase at lottery outlets nationwide, providing convenience to those interested. It's worth noting that at the end of the 60-month period, you can redeem 100% of the invested amount, duly adjusted by the Reference Rate (TR).

What are the best capitalization bonds?

The best capitalization bonds are those that offer the best combination of profitability, liquidity, security and cost.

• Profitability: The profitability of capitalization bonds is generally low, but can vary depending on the type of bond and the rates charged.
• Liquidity: Capitalization bonds usually have a redemption period, which can be a few months or years. If you need to redeem your bond before the deadline, you may have to pay a penalty.
• Security: Capitalization bonds are not guaranteed by the Credit Guarantee Fund (FGC). This means that if the financial institution goes bankrupt, you could lose all your investment.
• Cost: Capitalization bonds often charge fees, such as loading fees and drawing fees. These fees can reduce the bond's profitability.

Is it worth investing in capitalization bonds?

The answer to this question depends on your goals and needs as an investor.

If you're looking for profitability, capitalization bonds aren't the best option. The profitability of capitalization bonds is generally low, and can be even lower depending on the type of bond and the fees charged. Furthermore, with some capitalization bonds, the deposited amount isn't fully remunerated. A portion of the amount is allocated to prizes, which are raffled among participants. In these cases, the bond's profitability may be even lower.

On the other hand, capitalization bonds can be a good option for those who want to compete for prizes and have an incentive to develop the habit of saving. and have an emergency fund.

If you are considering investing in a capitalization bond, it is important to evaluate the risks involved and make an informed decision.

Frequently asked questions

Check out some very common questions about capitalization bonds!

Can I redeem the capitalization bond at any time?

It depends on the type of capitalization bond.

Early redemption capitalization bonds allow redemption at any time, penalty-free. In these cases, the investor receives the deposited amount, adjusted by the discount rate, plus interest, if applicable.

Capitalization bonds without early redemption have a redemption period, which can be a few months or years. If the investor redeems the bond before the deadline, they may have to pay a penalty. The amount of the penalty is defined in the bond contract.

Does a capitalization bond yield more than a savings account?

The profitability of capitalization bonds is generally low, and can be even lower depending on the type of bond and the rates charged. The profitability of savings accounts, on the other hand, is set by the government and can vary according to the Selic rate.

In general, the profitability of capitalization bonds is lower than that of savings accounts. This is because capitalization bonds charge fees, such as loading fees and drawing fees. These fees can reduce the bond's profitability.

Does a capitalization bond need to be declared?

Yes, capitalization bonds must be declared on your income tax return. This declaration is mandatory for all capitalization bonds with a redemption value above the income tax exemption bracket.