Are you one of the majority investors in Singapore? In which instruments do you choose to invest?
Bonds are one of the most popular forms of investment in Singapore. This is because they are generally less risky than stocks and shares.
Even within this category there are manydifferent types of bonds, of which Singapore State Securities (SGS) are probably the safest.
In this article, we will introduce the different types of SGS and more.
So read on!
What are Singapore Government Securities (SGS)?
Singapore government securities are basically government bonds issued by the Monetary Authority of Singapore (MAS). These are debt instruments that typically offer a fixed interest rate to investors who "lend" funds to the government. Although they do not offer high returns, they have excellent credit ratings thanks to government support.
In addition, the Singapore government maintains a balanced budget policy and often runs surpluses. This means that they don't really need funds to spend. Instead, the main purpose of issuing these bonds is to develop the debt market and provide investors with a safe form of investment with long-term returns.
There are 4 main types of SGS, namely Singapore Savings Bonds (SSB), Singapore Government Securities (SGS), Treasury Bills (T-Bills) and Special Singapore Government Securities (SSGS). The most common type of SGS is SSB, while Treasury bills are the rarest. SSGS bonds are generally not relevant to individual investors, but are included in this article for interest and education.
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How do the four types of Singapore Government Securities (SGS) work?
1) Singapore Savings Bond (SSB)
Singapore Savings Bond (SSB)Launched on 1 October 2015 as a non-market SGS format for retail investors. SSB's primary objective is to provide small investors with safe long-term investment opportunities. These savings and investment funds can then be used to achieve their long-term financial goals, such as retirement. SSB issues MAS for the Government of Singapore.
SSB is safe because the payment of principal and interest is guaranteed by MAS. To protect individuals from capital loss, SSBs are also non-tradable securities. This means that SSB directly issues MAS and there is no secondary market.
SSB has a repayment period of 10 years, and the interest increases over time. This move is intended to encourage long-term investments. However, SSBs also have sufficient liquidity, allowing retail investors to exit the bond at any time before maturity without penalty.
But is it worth investing in SSB? What is a historical return?
The average return depends on how long you hold your investment. Also note that the interest rate varies slightly depending on the month of the bond you buy. Investors can expect a return of approximately 1.64% per annum (issued in February 2022) if they hold SSB to maturity.
If you are interested in purchasing SSB, if you are 18 or older, you must have a CDP account and a bank account with one of the big three local banks (POSB/DBS, OCBC or UOB). If you are already a memberAdditional pension insurance (SRS), you can also use these funds to invest in SSB. The minimum investment amount is 500 USD.
2) Singapore Government Securities (SGS) obligor.
SGS bonds are longer-term bonds with maturities of 2, 5, 10, 15, 20 or 30 years. They pay a fixed rate every 6 months. This is also known as a semi-annual coupon. Similar to SSBs, SGS bonds are a safe, long-term investment product. However, it offers less flexibility than SSBs as investors cannot redeem funds early. Conversely, investors who wish to exit can do so atSecondary market.
The usual interest rates on SGS bonds vary depending on the length of the term.
To invest in SGS bonds, you must be 18 years old. You must also invest at least $1,000 and multiples of $1,000. SGS bond passedfixed price auction,according toYear number calendar. Competitive and non-competitive offers are accepted.
You can choose to invest with cash or funds from:Central Insurance Fund Investment Scheme (CPFIS)Or the supplementary pension insurance system (SRS).
3) Treasury bills
Treasury bills are bonds with a shorter maturity, 6 months or 1 year. They are issued at a discount to the nominal value and can be redeemed at the nominal value upon maturity. Again, government bonds are a safe investment.
Historically, the yield on the 6-month Treasury note was 0.54% and the yield on the 1-year Treasury note was 0.54%. These bonds are comparable to other SGS bonds in terms of investment time.
MAS issues T-bills bi-weekly or quarterly through fixed-price auctions, similar to SGS bonds. you can checkrelease calendarMore information about when Treasury bills are issued.
The minimum investment amount is 1000 USD and can be multiplied by 1000 USD. You can invest using cash, SRS or CPF.
4) Special Singapore Government Securities (SSGS)
Although SSGS bonds are not available to individual retail investors, it can be interesting to understand what they are and how they work.
SSGS bonds are non-transferable bonds issued by the government to meet the investment needs of the Provident Fund Board. They are financed from the insurance funds and then usually handed over to MAS and GIC.
Under the Government Securities Act 1992, income from the SSGS and other SGS funds cannot be used for public expenditure in Singapore. Instead, these funds are together with the public surplussafe investmentPowered by MAS and GIC. Specifically, MAS deposits funds and converts them into long-term foreign assets through the foreign exchange market (FOREX). These investments will be transferred to GIC for long-term management.
This allows the Provident Fund Board to focus on its core function as a state social security agency, while managing the funds well and providing a reasonable return.
SSB vs. SGS bonds vs. Treasury bills: 9 key differences
Overall, these key factors are comparable across the three different types of SGS (SSB, SGS Bond and Treasury).
|Singapore Savings Bond (SSB)||Singapore Government Securities (SGS) - Debtor||Treasury bills|
|1||tenor||10 years||2, 5, 10, 15, 20 or 30 years||6 months or 1 year|
|2||Method of issuance||Quantity limit||fixed price auction||fixed price auction|
Via local bank or SGX
through a local bank
|4||minimal investment||$500 and multiples of $500||$1,000 and multiples of $1,000||$1,000 and multiples of $1,000|
|5||maximum investment||200,000 dollars||nobody||nobody|
|6||Possibility of investing using CPF and SRS funds||SRS is OK, CPF is not||Yes, both apply||Yes, both apply|
|7||Average annual production||1.39% in a period of 10 years (0.35% in the 1st year, 2.55% in the 10th year)||The 10-year bond rate is 1.39%||0.35% for 1 year|
|8||frequency of interest payments||every 6 months||every 6 months||modern|
|9||Fleksibilnost for early redemption||Flexible, can be used in a certain month without penalty||it is not flexible||it is not flexible|
7 advantages and disadvantages of SGS (general)
As with all forms of investment, there are pros and cons to choosing SGS. Knowing these pros and cons will allow you to make a more informed decision.
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1) State aid (credit rating AAA)
Singapore's government has a strong credit rating of AAA. This makes the guarantee of principal and return very reliable, making SGS bonds a safe form of investment.
2) Earn regular interest
Both SSB and SGS are long-term bonds with ongoing interest payments every 6 months. Treasury bills are an exception, but that's because it's a shorter bond, either 6 months or 1 year. This means that small investors can enjoy regular interest payments even as they save for the long-term future.
3) Make minimal investments to begin with
There are very low barriers to entry for investments in SSB, SGS and treasury bonds. Minimum investment amounts range from US$500 to US$1,000, which is affordable for most Singaporean adults.
4) Different investment methods
Furthermore, Singaporeans don't just have to use cash to invest. You can also invest in these securities using funds in your CPF or SRS. This allows you to invest more easily without affecting your cash flow. It is also a great way to use the money you have already accumulated in these schemes to get even more returns.
5) There are limitations
In particular, there are limits on the amount you can invest in SSB, capped at $200,000. This is important because it limits the absolute return that can be achieved overall.
6) Potential insolvency
With the exception of SSB, SGS bonds and T-bills are relatively illiquid. If you exit your investment early by selling in the secondary market, you may not be able to make a profit.
7) The interest rate is relatively low
This is probably the biggest drawback of investing in SGS. All SGS prices are relatively low, especially atAverage annual inflation rateIt is estimated at 1.52% over the last 30 years. This means that yields on SGS bonds will barely make up for and may even be less than the loss in cash value due to inflation. As a result, many small investors choose to diversify into investments such as stocks and shares, which are riskier but can also bring higher returns.
SGS is a great way to diversify your portfolio and protect your wealth. SSBs, SGS bonds and treasury bills are good vehicles for saving for long-term financial goals. But if you want to grow your wealth over time, it's wise to invest in other assets, such as stocks, shares and ETFs.
Disclaimer: Statements or opinions expressed on this website are my own. This information is for informational purposes only and should not be considered as financial advice.