Hedge your risk with bonds, especially government and investment grade corporate bonds
Regular Cash Payouts
Enjoy regular cash
payouts through coupon
payments made annually
or semi-annually
Capital Appreciation
Bonds present significant opportunities for capital appreciation in addition to regular cash payouts.
Diversify Your Portfolio
Diversify your portfolio and balance out higher-risk asset classes by including investing in bonds.
Details
What are Bonds?
A bond is a debt security where the bond issuer issues the bond for purchase by the bondholder. It is also known as a fixed income security, as a bond usually gives the investor a regular or fixed return.
Why invest in Bonds?
When equity markets are going through a bull run, investors are excited and many make the mistake of neglecting to balance their portfolios with more neutral investment choices like bonds. It is only in the face of a bear market that we realise how important the safety and stability of bonds are to an investment portfolio. Some of the benefits of bonds are:
Lower-risk investment This is especially true for government bonds and investment-grade corporate bonds
Regular cash payout Through coupon payments made annually or semi-annually
Potentially higher interest rates Compared to Fixed Deposit rates
Capital appreciation opportunity In addition to regular cash payouts
Investment diversification Balance out higher-risk asset classes in portfolio
What are the Risks?
Before you invest, however, you need to understand there are risks involved when it comes to investing into bonds. Here are some of the key risks to consider before you invest:
Interest rates risk: Bonds usually pay a fixed coupon. This means that a rise in interest rates generally result in bond prices falling conversely, when rates decline, bond prices rise.
Credit risk or default risk: This is the risk that a bond issuer will be unable to make interest or principal payments when they are due.
Currency risk (for investment in foreign currency bonds): Foreign currency investments are subject to exchange rate fluctuations which may affect, unfavourably or favourably, the effective return on the bond.
Liquidity risk: Investors may have difficulty finding a buyer when they want to sell and may be forced to sell at a significant discount to market value. Also, most bonds are subject to a minimum transaction threshold. If your investment is less than that threshold, you will not be able to sell until and unless there are enough other investors who also want to sell.
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Disclaimer
Please note that this hyperlink will bring to you to another website on the Internet, which is operated by InTouch, an independent company appointed by the Bank to support its Speaking Up programme. Please be mindful that when you click on the link and open a new window in your browser, you will be subject to the additional terms of use of the website that you are going to visit.
