| What are bonds? | |||||
| In simple words, bonds are money that you lend to large companies or governments, and in return, you get some interest (aka coupon) payments in return. The coupon payments have a pre-determined rate and schedule. When the bond matures, the company or government will have to repay the initial sum to you. For example, let's take a look at a bond issued by the Singapore Government (aka SGS Bond) with the name NA12100N 420202 10. | |||||
| SGS Bond name: NA12100N 420202 10 | |||||
| Date of issuance: 02 Apr 2012 | |||||
| Coupon Rate: 2.75% pa | |||||
| Maturity: 02 Apr 2042 | |||||
| Coupon Payment Frequency: Semi-annual | |||||
| How do I buy or sell SGS Bonds? | |||||
| At issuance, you can buy SGS Bonds via the ATM or bank (similar as IPO for shares). Thereafter, SGS Bonds are tradeable and listed on SGX. You can easily check prices, and buy/sell similar to how you trade shares on SGX. Check here for the list of SGS Bonds. SGS Bonds minimum lot size is 10 units. For example, NA12100N 420202 is currently trading at $96.829. Hence, the minimum to buy is 10 x $96.829 = $968.29. | |||||
| What are the returns/cash flow like? | |||||
| For NA12100N 420202 10, it was issued at $100. Say, in 2012 you had bought the bond at issuance (eg $10k investment, 100units) and held the bond till maturity, then you would get coupon payments totaling $275 per year (ie. 2.75% pa). At year 2042, you will get your $10k invesment back. However, say you wish to buy the bond on SGX today and the price quoted is $96.829, you would still get coupon payments totaling $275 per year. If you hold the bond till maturity, you will get your $10k investment back. If you decided to sell 3 years down the road, and the price quoted is $101, then that means you make $101-$96.829 = $4.171 per unit, which means $4 x 100 units = $417.10. | |||||
| Are SGS Bonds suitable for me? | |||||
| SGS Bonds are good for preserving your money. SGS Bonds would be suitable for beating inflation. The returns from bonds are pretty much capped. Typically, investing in bonds have longer time frame (at least a year) to be able to see its returns, vs stocks which require a buy/sell trading strategy in order to see its returns. Here are some scenarios which may apply: | |||||
| - you have funds set aside for your children's university education in a few years | |||||
| - you are looking to place a deposit for a new home in a few years | |||||
| - you are at your retirement age and want to have a steady source of income with low risks | |||||
| - you are looking for a place to park your funds during a quiet or down market (current stock market) | |||||
| - you feel you don't have a good hand with shares, hence this could be a fuss-free option for you | |||||
| - you can use bonds to form part of your base portfolio, while using the returns from the Bonds together with fresh savings to invest in other products that give higher returns. | |||||
| What is the difference between SGS Bonds and the upcoming Singapore Savings Bond? | |||||
| With the recent hype on the soon-to-be-issued Sg Savings Bond, several investors enquired on the difference between these 2 bonds. Both are essentially the same, just a matter of different features. The different features are listed below: | |||||
| Question | SGS Bond (eg. NA12100N 420401) | Singapore Savings Bond | |||
| How long can I invest for? | Different Bonds have different maturities. NA12100N 420401 matures in 2042. | Each Savings Bond has a term of 10 years | |||
| How much can I invest? | Minimum is 10 units. Eg. if price is $97.00, then minimum is $970. No maximum limit. | $500 up to $50,000 per bond issue and can hold up to $100,000 worth of the bonds at any one time. | |||
| How do I buy? | Via purchase on the stock market. The SGS trades like shares on the SGX. | Via ATM. | |||
| How do I sell or terminate? | Via sale on the stock market. The SGS trades like shares on the SGX. | You can redeem them in any given month before the bond matures with no penalty. | |||
| Can I use cash and/or CPF? | Cash and/or CPF | Cash only | |||
| What is the return? | Different Bonds have different maturities. NA12100N 420401 has a coupon payment of 2.75%pa. | While SGS bonds pay the same interest every year, Singapore Savings Bonds will pay coupons that step up over time. The average interest investors will receive over the period they hold Singapore Savings Bonds will match what they would have received had they bought an SGS bond of equivalent tenure. This means that if you hold your Savings Bond for the full 10-year term, the average interest per year on your investment will match the return if you had invested in a 10-year SGS bond. The 10-year SGS has mostly yielded between 2 and 3 per cent over the past 10 years. Singapore Savings Bonds will be issued monthly and the interest rate schedule for each issue will be announced before applications open. | |||
| Note: | |||||
| A CDP account in required before apply or buying/selling SGS Bonds or the Singapore Savings Bond. CDP accounts can be opened for Singaporeans and PRs aged 18 and above. | |||||
