Hanoi (VNS/VNA) - Ordinary citizens face higherrisk in the current stock market environment, said the Ministry of Finance in arecent report released after a number of recent high-profile corporatescandals.

A number of firms, in recent years, have deliberately promisedhigher-than-market interest rates to lure people. The ministry said there hasbeen an increase in activity by investment consultant firms and financialinstitutions to approach and convince a large number of people to put theirsavings in corporate bonds and stocks. 

Some individuals have been advised to take advantage of legal loopholes to signinvestment contracts with securities firms to purchase private offerings, whichis prohibited by laws.

A major vulnerability, according to the report, was their lack ofcapacity to conduct in-depth analysis and risk assessment in buying corporatebonds and stocks. The ministry advised potential investors to carefully studybond issuers' business performance, and the demand for their products andservices before putting money down. 

While some high-quality corporate bonds are considered relatively safe andconservative investments, investors who buy a corporate bond are effectivelylending money to the company. It's important to remember that it's not a savingaccount and ultimately it's the sole responsibility of bond issuers to repay.Citizens face the risk of losing part or their entire savings should the bondissuers default or struggle financially.

In addition, financial institutions and securities firms only actas middlemen in providing their services to both bond issuers and citizens forcommission fees. They are in no way responsible for repayment should theissuer default due to reasons such as insolvency or bankruptcy.

Even in the case of guaranteed bonds, citizens have been advisedto look into if and how much the guarantee covers their investments. 

It's also recommended that citizens make inquiries into bondissuers' collateral to gain a better understanding of how theirinvestments may be recovered in case issuers were forced to default. In Vietnam,a large portion of collateral consists of issuers' real-estate properties,development projects and stocks. As such, not all of them may be cashed outquickly or at all in the event of a market shock. In some cases, they will notbe able to recover citizens' investments in full. 

The ministry said a common pitfall that must be avoided at allcost was buying high-yield bonds without looking into issuers' businessperformance and collateral while also not spending time to understand infull the issuers' terms and conditions./.