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.
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)