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 24th, 2007 at 9:46 pm
@melvin:
i’m afraid there’s a bit of misinformation in your posts and that you have a lot of misconception about bonds and bond funds:
#1. your mistake in buying a high-yielding corporate bond at the time was that you were blinded by the high coupon. you had no idea of the risks involved in buying a bond, i.e. default risk, interest rate risk, etc.
this is the very reason why a bond fund is usually the 1st choice for newbies who are looking to diversify into fixed income portfolios. you have a manager who will look after the research, plus you don’t endure the risk of holding ONE bond issue.
#2: a bond fund makes money from BOTH coupon payments and capital gains (if sold prior to maturity at a premium). the bond fund is also guaranteed the principal of the bond if the fund holds the issues to maturity. think about this: why would a bond’s properties be different when an individual investor like yourself is holding it as opposed to a mutual fund?
#3: whether a bond fund issues periodic payments (known as distributions in mutual fund parlance) is dependent on the mandate of the fund, so read the prospectus. some funds will have a fixed monthly distribution, some variable, depending on income made for the period. some will have only year-end distributions.
#4: you can lose your principal in a bond investment, whether you own one bond issue or a bond fund. it all depends on WHEN you sell it. remember that you only recoup your principal if you hold the bond to maturity, so in between your purchase and maturity, the bond’s value is subject to appreciation/depreciation depending on the prevailing interest rates, etc.
#5: holding a single bond issue is RISKIER (and hence, more volatile) than holding a portfolio of bonds. its going to be a reaaaaaaaaally long discussion (and a technical one at that) if i go on to talk about the merits of diversification.
early in your post you already experienced the fear of your issuer defaulting on payments, so you should already know that there’s more risk to be considered when buying a bond than just thinking of capital appreciation. even if you were planning to hold your bond to maturity, if the issuer defaults then you end up holding nothing.
September 24th, 2007 at 9:15 pm
@angie v:
i agree w/ salve on this one and disagree with your claims.
if you buy a bond fund, you ARE buying a basket of bonds, whether they be a fund whose mandate is to hold govt-issued, corporate or even junk bonds.
the bond fund is subject to the collective risks and rewards of its underlying bond holdings.
i don’t why you said that the objectives of buying a bond is different from buying a bond fund. maybe you have a different understanding of bond funds, no?
the primary reasons why investors buy a bond fund instead of holding one or two bonds is the same as why investors buy an equity fund instead of a couple of stocks: diversification and professional management (even if you only have a small amount to invest).
lastly, i think its your comments that are misleading this time around–bond funds are NOT like equity securities.
September 24th, 2007 at 1:30 pm
“There’s another way to buy corporate bonds: through bond funds whether UITFs or mutual funds.”…
Salve, readers may misunderstand this statement of yours. If you invest in bond funds, you are not really buying bonds. yes, the fund invests in bonds but the bond fund investor is not able to enjoy the benefits of the bond.
Investment objectives in buying bonds vs bond funds differ. In fact, mutual funds including bond funds are more likened to equity securities. Baka lang kasi misinform ang readers mo with your last paragraph. Thanks & more power!
September 24th, 2007 at 12:40 pm
i expect pdex at http://www.pdex.com.ph to be open to the public. its mission-
To develop and operate a centralized electronic marketplace that will promote price discovery and transparency for Philippine fixed income securities and foreign exchange transactions. its like the pse but instead of stocks, bonds & govenment securities are traded.anyone knows the status of this project?
September 24th, 2007 at 9:05 am
[...] Money Smarts : Buying corporate bonds [...]