How to Invest in Philippine Fixed Income Funds for Beginners

Are you interested in investing in securities and funds besides equities and conventional savings accounts? By adding fixed income assets to your investment portfolio, you are diversifying it. Although fixed income securities are less common than other investment categories in the Philippines, they are nevertheless worth considering.

Why should you invest in fixed income securities and what exactly are they? Find out in this article.

What are Fixed Income Securities?

With the face amount invested repaid to you at the conclusion of the period, fixed income securities provide you with a steady source of income throughout time. With less risk than equities, you can profit from having a reliable passive income stream. It’s the ideal investment choice because it enables you to increase your income despite shifts in the performance of the present market.

You are lending money to the government or a business when you invest in fixed income securities, and they will return the money to you with interest.

A fixed income investment grows money regardless of market price swings, making it perfect for supporting short-term objectives or capital preservation. Although low, the income is nevertheless larger than that of a conventional savings account.

What are the Types of Fixed Income Securities?

Government Securities

Government securities are debt instruments that are issued by the Philippine government through the Bureau of the Treasury (BTr), a department of finance organization that is primarily in charge of managing the financial resources of the entire country.

Because they are fully guaranteed by the federal government and supported by its full taxing authority, government securities are the safest kind of investment. Upon maturity, investors can anticipate receiving their money. Additionally, you can pledge government bonds as security for a loan. However, the return on these fixed income securities is the smallest.

• Fixed Rate Treasury Notes. FXTNs, or fixed rate treasury notes, give investors interest payments every six months. The final withholding tax on interest payments is 20 percent. The investor receives both the principle and the final interest payment at maturity.
• Treasury Bills. The most regularly traded zero-interest debt product having a maturity of less than a year is a Treasury bill, sometimes known as a T-bill (three, six, or nine months). T-bills are securities that don’t pay interest. Investors make money by buying T-bills from banks at a discount, which is less than their face value, rather than getting interest payments. When the bond matures, the government gives investors its full face value.
• Retail Treasury Bonds. Retail Treasury Bonds (RTBs), which are available to small investors, offer better yields and lower prices than other fixed income securities including FXTNs, T-bills, and time deposits.

Corporate Bonds

Corporate bonds are a type of debt that is issued by public and private corporations to raise money for continuous operations or corporate growth. They are also known as long-term commercial papers.
They are offered as US dollar- or Philippine peso-denominated bonds.

• Peso Corporate Bonds. Philippine companies that are registered with the Securities and Exchange Commission issue peso corporate bonds (SEC). Ayala Land, Inc., Petron Corporation, San Miguel Corporation, and SM Prime Holdings, Inc. are a few businesses that provide bond investments. Every three to six months, the entity that issues your Peso corporate bonds will pay you interest (subject to 20 percent final withholding tax).
• US Dollar Corporate Bonds. Corporations in the Philippines and abroad may issue US Dollar-denominated corporate bonds. Compared to USD time deposits, these bonds have better returns.

Certificate of Deposit

Certificates of Deposit (CDs), also referred to as time deposit accounts, are issued by banks who hold the invested monies for a specified amount of time. Most CDs offer interest rates that are greater than those of standard savings accounts but lower than those of bonds. Time deposits are thus the best option for securing your emergency cash. Time deposits are protected in the Philippines by the Philippine Deposit Insurance Corporation up to Php 500,000 because they are a form of deposit product (PDIC).

Long-Term Negotiable Certificates of Deposit

Long-term negotiable certificates of deposit (LTNCDs) are issued by banks to fund ongoing operations or growth plans.
The interest rate on these fixed income assets, which come in Philippine peso denomination, is higher than that on standard time deposits and other bank deposit products.

Why Should You Invest in Fixed Income Funds in the Philippines?

Liquidity

On any banking day, you can purchase and sell fixed income assets.

Fixed Prices

Regardless of market fluctuations, your income source is set.

Reduced Risk

Investing with the Philippine government will reduce your risk.

Expert Opinion

Ask for assistance on fixed income securities that would be best for your portfolio.

What are the Pros and Cons of Investing in Fixed Income Funds?

Prospective investors should be informed of the advantages and hazards associated with fixed income investments.

Benefits of Investing in Fixed Income Securities

• Stable source of income. Throughout the duration of your investment, you are provided a steady revenue stream regardless of sudden market fluctuations.
• Fixed interest payments. The investor is aware in advance of the amount of income and the frequency of payments as soon as the securities are purchased.
• Low risk. Investing specifically in the Philippine government lowers your investment risk and guards against market price changes. Your money is backed by the government and other organizations that have a track record of sound financial management and on-time debt repayment, so you won’t lose it.
• Diversification. If the majority of your investment portfolio is made up of stock investments, you can reduce your risk by making investments in less risky securities like corporate or government bonds.
• Medium to high liquidity. On every banking day, brokers like banks can readily buy and sell fixed income securities on the secondary market. Fixed income investments have greater yields compared to traditional deposit products, even though they may not be as profitable as stocks. This is because they offer larger returns than savings and time deposit accounts.
• Affordability. Because retail treasury bonds only require a Php 5,000 minimum investment, even young adult investors can purchase fixed income instruments.

Ready to invest in fixed income funds today? Choose to do so with a reliable asset management company in the Philippines! With CAMCI’s Cocolife Fixed Income Fund, young adult investors like you can now build and protect assets. Send us a message today to schedule a discovery call with one of our Investment Specialists.

Some Drawbacks in Investing in Fixed Income Securities

• Lower returns than stocks. Fixed income securities pay a lower rate than other types of investments, especially equities or stocks, because they are cautious.
• Slow capital growth. There is a chance that market prices could increase sooner than the fixed income security’s interest rate in the future.
• Risks associated with inflation. Should the interest rate on the fixed income security be lower than the rate of inflation, the return will likely be negative.
• Risk of non-repayment. The financial stability of the entity issuing the securities influences this risk. A financially troubled company’s corporate bonds may not be repaid, putting the principal and interest in danger.

Of course, for every benefit comes the disadvantages. By investing with credible PH asset management, you can reduce the risk ensuring you get the most profit and value for the money you invested. Schedule a discovery call with one of our Investment Specialists, simply send us a message and we will take it from there!

Invest in Fixed Income Fund with a reliable Asset Management Company in the Philippines today!

Steady income lets investors plan for spending, a reason these are popular products in retirement portfolios. Whether you are a young adult entering the corporate world, a retiree, or OFW, you can rely on fixed income fund investments to protect your assets and generate wealth. At CAMCI, we have Investment Specialists who can help you get started. We will assess your current financial situation and advise you on the best route to take.

We started operations in 2003 and are licensed to operate as an investment adviser and principal distributor of Mutual Funds including United Fund, Inc., Cocolife Fixed Income Fund, Inc., and Cocolife Dollar Fund Builder, Inc.
Our Funds have received recognition and awards from both International and Local award-giving bodies such as Thomson Reuters Lipper Fund and Philippine Investment Funds Association (PIFA) for our superior performance over the years.

Learn more about Cocolife Asset Management here.