The bond market, famously called the debt or credit market, is one of the largest securities markets in the world. It gives investors countless investment options. Bonds have grown to become over $100 trillion market and they are recognized as one of the best means of protecting your hard-earned money while earning attractive interest, giving considerable returns and potential benefits. Understanding bonds and how investing in them can help you reach your personal financial objectives is vital for efficient wealth management.
Get to Know What Are Bonds
Bonds are a sort of borrowing that helps in the capitalization of businesses and governmental entities. By purchasing bonds, you make a fixed-return, fixed-duration loan to debt instrument issuers. Technically, bonds are a form of legally binding IOU that investors sell among themselves. A person enters into a contract pledging to repay the money borrowed with interest on a specified date and lends it to the government or a business producing bonds.
Different Types of Bonds
Here are some types of bonds you can invest in.
- Singapore Savings Bonds (SSBs)
Savings Bonds are a unique kind of Singapore Government Securities (SGS) that include characteristics that make them appropriate for ordinary investors. The Singaporean government issues and completely back savings bonds. Investments in Singapore bonds, which have terms of up to 10 years, are only open to those who are at least 18 years old. At the time of issuance, interest rates are fixed and locked in for the whole 10-year period.
With the ‘step-up’ interest option, you can receive a greater interest rate on these 10-year tenor SSBs if you hold them for a long period. These SSBs can be redeemed before maturity, receiving pro rata interest without incurring any capital loss. SSBs may be purchased for as cheap as SGD 500. They have an SGD 500 minimum investment commitment, with interest paid every six months.
- Unit Trusts
Investors in Singapore have also access to a range of unit trusts investing in different aspects of the bond market, including investment-grade corporate bonds, government bonds, high-yield bonds, and more.
You can buy unit trusts through a flat payment for as low as SGD 1,000 or via a monthly savings plan of SGD 100 per month. These funds frequently maintain portfolios of 40-50 stocks or bonds, decreasing the risks connected with any of those products.
- Retail Bonds
Investors can also acquire corporate bonds, which are sometimes called bonds issued by corporations. There are two ways to trade corporate bonds in Singapore. One way is to trade retail bonds in smaller lot sizes for a minimum of SG$ 1,000.
To make a purchase, you need a securities brokerage account, which you may create using your bank’s online banking websites or ATMs. These retail bonds can be sold on the Singapore Exchange (SGX) website.
4. Bond ETFs
You may diversify your investments in Singapore government and Asian corporate bonds by using these Exchange-traded Funds. They are available in board quantities of 100 pieces. You can invest in a Singapore bond ETF by opening a standard savings account with a monthly minimum contribution of SGD 100.
Various Benefits of Investing in Singapore Bonds
Know the benefits of investing in bonds to see why you should favour bonds in your financial portfolio.
- Offers a steady income
Although many investments provide some form of income, bonds usually provide the greatest and most steady income source. Using a variety of accessible alternatives, you may build a portfolio that meets your income demands even when interest rates are low. Emerging market debt and high-yield bonds are examples.
Bondholders get monthly coupon payments and have first dibs on the cash flow of the bond issuer if the latter is in good financial standing. Above all, a well-diversified bond portfolio may provide acceptable yields while being less volatile than stocks. They are also more profitable than bank products and money market funds.
- Enjoy tax breaks
You can lower your tax bill by investing in bonds such as Singapore Government Securities (SGS) and securities issued by the Monetary Authority of Singapore (MAS), which have low tax rates. Furthermore, under the Qualifying Debt Securities system, interest income on MAS Bills, SGS, and MAS Floating Rate Notes (FRN) is tax-free for individuals. You also do not pay capital gains tax.
- Have Portfolio diversification
When opposed to stocks, which experience more price fluctuations in the market, the promise of ultimate repayment of the principle and guaranteed income during the term is a stabiliser and vital diversification tool for bonds. High-quality bonds are dependable investments for people nearing or in retirement because they preserve principal while delivering a consistent income stream.
- Ensure principal repayment
Bondholders can expect to receive their principal amounts returned at maturity if the issuer is financially stable.
- Make issuers legally obligated
Bondholders should get monthly coupon payments from bond issuers before shareholders receive dividend payments. In the event of company failure, the bond issuer must first pay bondholders before distributing any residual cash to shareholders.
With all these options, you can now think about investing in Singapore bonds.