Fixed income assets are financial instruments that help provide a steady stream of passive income to investors. They usually involve loans or debt obligations issued by governments, corporations, or other entities. In return for the debt, a fixed interest rate is given to the lender.
Fixed income assets can be a big help in letting you reach financial freedom. While stocks and mutual funds can have bigger returns, they tend to be volatile. Fixed income assets can serve as the safety net of your portfolio. Even as the market is in a downturn, they can still help you get a return for your investments.
Here are some examples, and how you can gain access to them!
1. Government Bonds and T-Bills
Government bonds, also known as treasury bonds, are debt securities issued by governments to raise funds. These fixed income assets usually have fixed interest rates and a set maturity date. They are often touted as one of the safest investments available, but the catch here is that returns are often lower due to the smaller risk involved. Treasury bills (or t-bills) are similar in many aspects, just that they have a maturity date of less than 1 year whereas treasury bonds mature after more than a year.
Some common examples are the RTB25 and the Premyo Bonds. The RTB25 provides a 2.375% interest rate per annum where interest payments are made every quarter. The bond matures after 3 years. The Premyo Bonds are bonds with a gimmick added in. Aside from receiving a 1.25% interest rate with a 1-year maturity, Premyo Bond investors receive raffle entries! The prizes include brand new cars and cash for the lucky winners.
Usually, investors would need to get in touch with their local bank of choice to set-up investments in government bonds or t-bills. However, the process is easier now thanks to BONDS.PH. A platform from UnionBank, it aims to make investing in treasury bonds and bills easier by making it possible to do so just from your mobile phone.
2. Corporate Bonds
Corporate bonds are fixed income assets that help companies raise capital. They are also debt instruments similar to government bonds, but are perceived as riskier assets. Corporate bonds also have fixed interest rates (paid regularly) and predetermined maturity dates. They usually feature higher interest rates than government bonds and bills given the increased perceived risk.
Choosing which corporate bond to invest in comes down to your due diligence. Similar to investing in stocks, try to figure out if the company offering corporate bonds is one that will stand for a long time and if the debt will be put to good use.
As for purchasing them, the experience differs per broker. The process is somewhat similar for different banks and brokers – fill up the forms and go through the usual registration processes. Once you’ve got an account up and funded, you then have to figure out what your broker will let you do. Some brokers will only allow the purchase of newly issued bonds through primary offerings. Others, like Security Bank, allow for the purchase of “2nd hand” bonds through the market. The ability to purchase bonds from the market is a BIG convenience, especially if you plan to invest periodically. Companies don’t issue new bonds everyday, so your money might get stuck for a while if you have to wait for new primary offerings.
3. Time Deposits
Time deposits are financial products usually offered by banks. By agreeing to keep your funds with the institution for a specific period, you’ll receive a bigger interest rate compared to the usual savings rates.
Usually, you’ll find time deposit options that span through 30, 60, 90 days and onwards. Rates can sometimes range from 0.5% up to 1.5% per annum, but largely differs based on the bank offering them and the amount to be deposited. If you’re looking for bigger rates, digital banks have started to offer time deposits themselves. The likes of UnionDigital Bank are offering time deposits with rates up to 6.75% for 1 year, while others such as Tonik offer similar time deposit options with more flexibility at a rate of 6%.
If you want to invest in time deposits, it would be best to first figure out which digital bank offers the best options suited for you. Once you create an account with the one you like, just look for the time deposits section and the process should be straightforward from there.
4. Pag-IBIG MP2
The Pag-IBIG MP2 is a special mention in this list. No, it’s not a fixed-income asset, but it is definitely something finance savvy Filipinos should know about. The Pag-IBIG MP2 is a voluntary savings program that any Pag-IBIG member can join. The minimum remittance for the MP2 program is PHP500.
The most attractive feature here is the solid track record of the fund. Throughout the past years the fund has delivered returns of 6% or more! Dividends even reached as high as 8.11% back in 2017. While this isn’t as eye-catching as some promos from digital banks, you have to consider that the MP2’s returns aren’t just a promo – their rates have been high for multiple years now, and will most likely continue to range at least above 5% per year.
Investing in the MP2 should be easy now given that Pag-IBIG launched the Virtual Pag-IBIG platform. All you have to do is go to this link and proceed to create your savings account. From there you’re good to go.
On a Final Note
With the different fixed income assets available along with the multitude of investment options, we now have a lot of tools to help us reach our financial goals. All that’s left is for us to create a plan and stick to it.
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