If you want a consistent income to save enough for the future, invest in a diversified portfolio, and reduce taxes, fixed income investments can help you achieve your objectives.
Recent changes in the financial landscape have created new opportunities in fixed-income investing. There has never been a better moment to take advantage of the strategic benefits of portfolio diversity, the revival of yield opportunities, and the high potential for capital preservation in domestic and international markets.
What are fixed-income investments?
Other than offering a certain amount of interest income, fixed income investments provide potential tax advantages, capital diversification, and capital preservation. High-quality fixed income investments can be a good choice if you are looking for a diversified portfolio and possible tax advantages.
These assets, which are often referred to as bonds, are a low-risk asset class. Governments and businesses can issue fixed income investments, a financial instrument. These organizations borrow funds from investors and pay interest to have the funds required for growth and expansion. If you are a do-it-yourself investor, you can invest in a few fixed income instruments in Singapore.
Bonds
Bonds are a type of debt instrument, which you can purchase making a fixed-rate loan to the government organisation or business issuing the bond. In this regard, bonds are technically legal documents or “IOUs” that investors get in return for the money invested. They produce a consistent income and are thought to be more regular and dependable than stocks.
You receive a coupon, which is the interest you earn for lending your money, and it is typically present in classic bonds. Coupons are paid quarterly, half-yearly, or yearly at predetermined periods. Bonds are also referred to as fixed income products since they provide the investor with a consistent stream of income.
The lending period of bonds varies and those with longer durations typically have larger coupon amounts. The bond issuer is legally required to return the principal amount at the bond’s maturity date, which signifies the end of the bond’s tenure.
- Singapore Government Securities (SGS)
Issued by the Singapore Government, Singapore Government Securities are tradable securities that help develop Singapore’s debt markets. They include both long-term SGS bonds of two to thirty years and short-term Treasury Bills of one-year maturity. The primary goals of SGS issuance are to:
- Attract investors and issuers in the Singapore bond market.
- Facilitate effective risk management by encouraging cash and derivatives transactions in a thriving secondary market.
- Create a liquid SGS market, which will offer a strong government yield curve for private debt securities pricing.
- Singapore Savings Bonds (SSBs)
The SSB came into effect on October 1, 2015. The goal of the SSB is to give long-term savings options with secure returns to individual investors. Thus, this would motivate people to invest and save to fulfil their retirement requirements and long-term financial objectives.
Some features of the SSB include:
- The government guarantees principal and interest payments.
- SSBs are non-tradable securities that shield investors from capital losses.
- Bondholders are eligible to receive interest that is correlated with long-term SGS rates.
- The minimum investment amount is only SGD500.
- You can redeem bonds at any time without incurring penalties.
Some Benefits of Investing in Fixed Income Investments
Investing in fixed-income securities offers several benefits:
Consistent income
The legal contract between a bond’s issuer and the bondholder includes the obligation to pay the coupon. Bondholders receive priority access to the bond issuer’s cash flow over shareholders and receive coupon payments regularly, provided the issuer is financially sound.
Protection of capital
Bonds appeal to investors because they guarantee a return on their investment. The issuing company has contractually committed to repaying the bond at maturity, even though bond markets can change.
Stability
The guarantee of fixed income and the paying back of the principal is a stabilizing factor and a helpful diversification tool when compared to equities, which are subject to greater market price volatility.
