Reader Mike wanted to know:
Where and how do I get corporate bonds? Are they available in small amounts e.g. P5000 like RTBs (retail treasury bonds)?
There’s a great website called AsianBonds Online that gives at-a-glance information on investing in bonds.
If you go to that website, you will find that bonds in the Philippines are either Long-Term Commercial Papers (LTCPs) or private corporate bonds. You’ll even find a list of private corporate bond issuers.
For issues of four years and over, the minimum amount of bid is P20,000. The minimum amount goes up as the tenor becomes longer to as much as P100,000.
Bonds are bought through financial institutions – mostly banks. The documentary requirements are quite stringent. Ask branch managers of your bank or their Treasury departments.
There’s another way to buy corporate bonds: through bond funds whether UITFs or mutual funds. This is the newbie’s preferred entry into the local bond market. Fewer headaches, lesser need to monitor the market.
Hope this helps. Happy investing!
September 23rd, 2007 at 9:22 pm
[...] Money Smarts : Buying corporate bonds [...]
September 22nd, 2007 at 9:31 pm
[...] Money Smarts : Buying corporate bonds [...]
September 22nd, 2007 at 5:58 pm
Dear Moderator,
Ako ay labis na natutuwa ng malaman ko ang website na ito kasi marami akong natutunan. Pero may ilang bagay na hindi ko maintindihan tungkol sa stock market kailangan ba parating may broker ? Or puwede ka naman bumili ng stocks na walang broker. At sa isang tulad ko ng nagiisip ng investment plans ano ang magandang investment plan na dapat kong simulan. Pumunta ako sa website ng Philam equity funds ok ba ito kasi meron silang 10,000 ang start up. Nalilito rin ako tungkol sa bonds, treasury bills, stock market ano ba ang advantage at disadvantage ng bawat isa. Ang isa pa meron po ba kayong maipapayo kung saan maganda maginvest on your own experience.
Maraming salamat po. Labis ko pong inaasahan ang inyong sagot.
Grace
September 22nd, 2007 at 11:50 am
Thank you for posting this article! A good read! I’m currently investing in a mutual fund right now and so far, im happy with the results. I see this as a good oppty to earn a “passive” income - letting your money work for you.
Some of the mutual funds that are interesting are BPI’s Ayala Fixed Income fund, BDO bond fund, etc. You can refer to http://parttimeinvestor.blogspot.com/ for more information.
September 22nd, 2007 at 6:54 am
A corporate bond was my very first investment. And I still remember how nervous I felt back in 2005, when I was signing the documents.
The bond was from First Gen Corporation, due 2010, yielding 11.55% p.a. payable semi-annually. Minimum investment was P50 k. It turned out to be a good investment after all, especially when interest rates started going down.
My mistake was not reading through the company’s financial statements and figuring out whether it is strong enough to be able to repay its obligations. Plus I wasn’t aware of how the bond was rated.
Now that I look back at it, I realize I took an immense risk. As an individual retail investor, I was not advised by the bank to read the financial statements. No prospectus was available, unlike in IPOs. The rating of the bond was not even published together with the advertisement for the offer. It was much later that I discovered that there is such an entity as Philratings.
A corporate bond is very illiquid. In 2006 I tried to sell the bond, thinking that because of record-low interest rates, I could fetch a premium over its par value. There were no buyers. Meaning, an investment in a corporate bond is a commitment of long-term money; money that most probably you won’t be needing over the duration/term of the bond i.e. 5 or 10 years. ( Plus, my bond investment was too small. If it were an institutional fund, it could have sold off the bond easily. )
Regarding bond funds, IMO they are not good investments.
If you have P100 k, it would be better to buy the bond itself because your principal and your interest payment are guaranteed over the term of the bond.
Correct me if I’m wrong but you don’t get the same assurance from a bond fund. It is possible to lose some principal, and I don’t even think you get regular interest payments.
Returns from a bond fund come from price appreciation of the underlying bond assets of the fund. If bond prices go up, so does the value of the fund, and lucky you. If bond prices go down, then not so lucky you. A bond fund tends to be volatile, whereas the actual bond itself may not be so, especially if one does not intend to resell or trade the bond and just hold on to it until maturity.