Four ways small investors can get into bonds
Many corporate bonds are only available to investors with at least $250,000 to fork out per trade. However, there are avenues now open to small investors.
To recap, the larger part of the bond market is only for accredited investors who are individuals who might be broadly regarded as having “high net worth”. In contrast, retail investors refer to those with personal assets of less than $2 million and annual incomes below $300,000.
Here are the options for investing in bonds for Singapore retail investors.
- Retail bonds traded on the Singapore Exchange (SGX). They can be bought and sold in “board lots” or minimum trade sizes of 1,000 units. There are about a dozen such bonds which are traded on the SGX. Buy/Sell prices are publicly available on the SGX website.
- If investors want diversification of their bond investments for a relatively small amount, an alternative is a bond exchange traded fund (ETF). Banks can offer a range of such ETFs. There are four bond ETFs traded on the SGX in minimum board lots of 100 units or 5 units, depending on the specific ETF.
These ETFs offer diversified investment in Asian corporate and Singapore government bonds. For example, the ABF Singapore Bond ETF trades in board lots of 100 units. And they are priced at time of writing around $1.11-$1.12. So, each board lot would require an investment of $111 to $112 only. Note you can also invest in a Singapore bond ETF via a regular savings plan through local banks.
- Another option is the Singapore Savings Bond (SSB), which provides a higher return alternative to fixed deposit accounts. You can invest in SSBs from as little as $500.
They are issued and backed by the Government of Singapore, which enjoys the highest credit ratings from the world’s top three credit rating agencies.
They are issued with 10-year maturities, but SSB holders may redeem their bonds at any time, with no penalties. (Unlike corporate bonds, SSBs cannot be sold to another party. They can only be redeemed through the Singapore Government.)
The interest rate is based on the average yields for benchmark Singapore Government Securities (SGS) recorded the month before the SSB issue. The return starts lower steps up over time. If you hold your SSBs for the full 10-years, your return will match the 10-year Singapore Government Securities in the month before the bond was issued. If you redeem early, you will receive a lower return – a figure similar to that for an SGS of an equivalent tenor.
- Finally, there are unit trusts which investors may invest in through banks and stockbrokers. Investors in Singapore can access a wide variety of unit trusts which invest in different segments of the bond markets – government bonds, investment grade corporate bonds, high yield bonds, etc.
Unit trusts pool investors’ funds to buy a large portfolio of securities. Investors can buy into UTs for as little as S$1,000 as a lump sum or S$100 a month under a regular savings plan. Yet, as a result of the pooling of investors’ monies, these funds often hold portfolios of 40-50 stocks or bonds, thus reducing the risks associated with any of those securities.
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