MAS has opened up more investment options to Singaporeans, including guaranteed savings bonds and enhanced access to ETFs and corporate bonds.
Words by Calvin Yeo
Good news: investing for your retirement just got easier.
The Monetary Authority of Singapore (MAS) will be opening up more investment options for local investors, announced Senior Minister of State for Finance and Transport Josephine Teo at an investment industry conference yesterday.
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- Making it easier to buy Exchange Traded Funds
- Giving investors better access to corporate bonds
- Introducing the new Singapore Savings Bonds
These initiatives, we believe, will be a step forward in helping Singaporeans plan for their retirement, which has become increasingly important due to the rising life expectancy in Singapore.
Easier to buy Exchange Traded Funds (ETFs)
We’ve actually highlighted to the MAS on multiple occasions and during the pre-Budget meeting to make ETFs more accessible to local investors, so it’s nice to see that they’re finally playing ball.
ETFs, as its name suggests, are investment funds listed on the stock exchange that allow you to buy a basket of stocks (such as the STI top 30 stocks) instead of buying one stock at a time. You get to invest in all the stocks with a small amount of capital and at the same cost of buying one stock.
Unfortunately, it has been difficult for investors in Singapore to buy ETFs, as they were previously classified as Specified Investment Products (SIPs).
In other words, they were deemed complicated or risky, and any investor who wanted to buy them had to first pass a risk assessment test.
Now, the rules will be tweaked such that only ETFs that use derivatives substantially will be classified as SIPs.
Especially for seasoned investors, this is a much-welcomed change. After all, index ETFs like the SPDR S&P 500 are certainly not considered risky, as they are made up of some of the largest and most successful companies in the world.
We hope that more local investors will take advantage of this lowered barrier to entry to create a more diversified investment portfolio for retirement.
Better access to corporate bonds
Retirees in countries such as the United States have been tapping on corporate bonds as a staple source of income for some time. This is because corporate bond prices are generally stable and the interest rate is usually fixed, giving retirees a clearer picture of how much they would be receiving.
Corporate bonds also help in diversifying investments apart from the usual fixed deposits, stocks and funds. Depending on the credit ratings, the interest rates for corporate bonds also tend to be higher than that of government bonds.
Although some progress has been made over the past year, investors in Singapore still find it difficult to access corporate bonds and also have more limited offerings to choose from. This is something the MAS is working to change.
Firstly, corporate bonds that are already in the market may be resized into smaller lot sizes, in order to better cater to small-time investors. Most corporate bonds currently have a minimum size of $250,000.
Secondly, eligible companies will be allowed to issue bonds to individual investors without a prospectus. This serves as an incentive for companies to issue more bonds for individual investors, as they will no longer have to incur expenses from publishing a prospectus.
(Believe it or not, a lot of money goes into creating a prospectus, which can easily run for thousands of pages!)
In addition, companies issuing corporate bonds will enjoy tax deductions so as to further defray the overall costs of bond issuance.
To complement this, we would also like to suggest for the MAS to look into capping the costs that investment banks charge for running the offering.
The new Singapore Savings Bonds (SSB)
Like the Singapore Government Securities (SGS), the SSB are safe investments principal-guaranteed by the government.
However, the SSB have two different features to entice individual investors: investors can get their money back at any time with no penalty, and they can earn interest linked to long-term SGS rates.
It sounds like a great deal, as investors will be getting long-term interest rate returns with maximum flexibility.
Just think about it: a 30-year SGS bond currently offers around 2.8% interest, while a 20-year SGS bond offers around 2.7% interest. The new SSB will definitely give the banks’ fixed deposit rates a run for their money.
Given how generous this scheme is, we can’t help but wonder if there will be a cap imposed on how much each individual can invest.
Like you, we’ll be waiting for the details.
[Updated on 30 March 2015]
The MAS has released more details on the Singapore Savings Bonds (SSB), which will be launched in the second half of this year.
Investors can put in a minimum of $500, and in subsequent multiples of $500, for 10 years.
As predicted, the total investment amount will be capped so as to maximise investor participation. However, the actual figure has yet to be announced.
More information on how to apply for the SSB will be provided closer to the launch date.