4 Ways A Retail Investor Can Get Access To Bonds In Singapore

4 Ways A Retail Investor Can Get Access To Bonds In Singapore

When it comes to investing, the first few things that come to investors’ mind are stocks or REITs. However, many investors tend to overlook or ignore bonds (fixed income securities) as an asset class.

bonds

What exactly are bonds?

Bonds represent debt obligations aka they are a form of borrowing. Bonds can be issued by the government or a company. Let’s say if a company issues a bond, the issuer owes the holders a debt and is obliged to them interest (also known as coupon payment) or to repay the principal at the maturity date. The interest payments are usually payable at fixed intervals – semi-annually, annually and sometimes monthly.

Note that in the event of liquidation (the process of ending a business and distributing its assets to claimants), bondholders will get the first priority in terms of getting paid, followed by unsecured creditors (suppliers, employees, banks and stockholders).

Generally, due to the nature of bonds, bonds are considered less risky than equities like stocks or REITs. That is also why bonds generally entail a lower return in relation to the risks.

Before you start investing in one, you have to familiarise yourself with the list of bonds available in the Singapore market that you can invest in:

1. Singapore Government Securities (SGS)

Debt instruments of the Government of Singapore are known as Singapore Government Securities (SGS). It can come in the form of Treasury Bills (T-bills), the Singapore Saving Bonds (SSB), Singapore Government Securities (SGS) and Quasi-government bonds.

All these debt instruments are backed by the government of Singapore and are suitable for risk-averse investors as its regarded as risk-free. SGS is designed to offer investors a rather safe way to gain exposure to a long-term yet flexible savings option with safe returns.

2. Corporate Bonds

Corporate bonds are debts issued by a corporate in order to raise financing for different purposes such as to ongoing operations, business expansion or merger and acquisition. The riskiness of the bonds varies, depending on the company that issued the bond. Usually, companies that are perceived to be more risky tend to offer a higher coupon rate in order to attract investors and vice versa.

The riskiness of a corporate bond can be determined by taking reference from the bond’s credit rating agencies such as Fitch, Moody’s or Standard and Poor’s. These credit rating agencies assess the issuer’s ability to meet its financial obligations on a timely basis.

The Singapore Government has been conferred the strongest credit rating by different international credit rating agencies. This simply indicates that Singapore has a very strong credit rating with minimal probability of defaulting on its debt obligations, which made SSB as one of the safest investments for investors to hold.

There are quite a few listed corporate bonds in Singapore that you can find on the SGX webpage.

Most Singapore corporate bonds are only available for trading to accredited investors and the minimum investment requirement is $250,000. For non-accredited investors, you can consider bonds issued by the Singapore government.

However, other than corporate bonds, there are a few bonds that are available for retail investors that only require a minimum investment of $1,000.

Here’s the list of retail bonds that fulfils the $1,000 minimum investment criteria.

3. Bond ETF

Bond ETF is a type of exchange-traded fund (ETF) that exclusively invest in bonds. It pays out interest to investors on a regular schedule as well.

The very first ETF that gives investors access to a basket of SGD-denominated, investment grade corporate bonds that is listed on the Singapore Stock Exchange is the ABF Singapore Bond Index Fund.

The following table is a range of bond ETFs available in the Singapore stock exchange. The table can be found from here.

ETF ABF Singapore Government Bond Index Fund iShare J.P. Morgan USD Asia Credit Bond Index ETF iShare Barclays USD Asia High Yield Bond Index ETF Xtrackers II Singapore Government Bond UCITS ETF
Stock Code A35 QL2 and N6M QL3 and O9P KV4
Primary Currency SGD USD USD SGD
Inception Date 31 August 2005 02 June 2011 05 December 2011 17 May 2010
Asset Under Management SGD750.09 Million USD37.26 Million USD62.37 Million SGD147.16 Million
Expense ratio 0.25% 0.27% 0.44% 0.20%
Number of Holdings 43 174 217 20
12 Month Dividend Yield 2.31% 4.02% 5.66% Reinvested
Dividend Distribution Frequency Annually Quarterly Quarterly N/A
Strategy Government Aggregate Aggregate Government
Geographical Focus Singapore Asia Pacific Region Asia Pacific Region Singapore

The ABF Singapore Government Bond Index ETF Fund provides investors with:

  • Low risk asset class that performs well especially during periods of difficult market conditions.
  • An effective portfolio diversifier that exhibits negative correlation to other asset classes during various market situations.
  • Has potentially higher returns than Singapore dollar fixed deposit rates and have a medium to long term investment horizon.

4. Unit Trusts with Bond Allocations

A unit trust is a collective investment in a diversified portfolio, which is accessible to retail investors. In layman terms, the fund manager takes your money and put them into different asset classes like bonds or stocks. Depending on which fund, the allocation size and geographical markets will vary.

As unit trusts vary, retail investors should look for unit trusts which specifically have bonds in as part of the trust. This can be seen in the unit trusts’ respective factsheets. Check out this example of a unit trust by BlackRock.

For unit trusts, there is usually a sales charge, annual management and administrative fees, depending on the fund.

Here are some other fees as stated by MoneySmart.com that you should take note of as well:

Fee Description Expected amount
Initial service charge A fee you pay when you buy a fund Up to 5% of your investment
Realisation / redemption fee The amount you pay when you sell the fund Up to 5%, but usually none if you had to pay initial service charge
Switching fee A fee to pay if you decide to switch from one fund to another (under the same fund manager) 1% of your investment
Online sales charge Admin fee for buying a fund online 1% of your investment

 

Conclusion

Majority think that investing in bonds require a large sum of capital. It is true, only if you are looking to invest in over-the-counter corporate bonds (minimum $250,000).

On the other hand, you can also start investing in bonds via ETFs or unit trusts with as little as $1000. As what Dr.Wealth mentioned in their article, for amounts as little as S$100 per month, DBS/POSB charge only 0.5% for their regular investment plans. A $100 investment would only cost $0.50 in fees, making it highly affordable for just about anyone. There is no excuse not to start investing now!

Whether you’re just starting out in your investing journey or an equity investor who is looking to diversify your portfolio – it is always good to have a good mix of both bonds and stocks in your portfolio.

To understand more about stocks and bonds, you can visit our Invest Academy page by clicking on the view now button:

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