Small investors here looking for a safe place to park their money to earn regular healthy returns will soon have a new option - fully guaranteed by the Government.
A new type of government bond is to make its debut as part of a push to ensure low-cost investments are more widely available to retail investors.
They will be called Singapore Savings Bonds (SSB), Senior Minister of State for Finance and Transport Josephine Teo announced at an investment industry event yesterday. She said the SSB will be safe investments that are principal-guaranteed by the Government, which means the investor's original outlay is protected fully.
Bonds are sold to investors by governments and companies to raise money. Investors get regular payments known as "coupons".
Most bonds are issued for certain terms, such as one year, two years, 10 years or longer.
Bonds here are usually listed on the Singapore Exchange.
A key feature of the new product is that a bondholder will be able to get his money back in any given month, without incurring a penalty.
This is unlike conventional bonds where an investor who sells the bond before its term ends is exposed to the fluctuating market price and may get less than the principal amount.
Mrs Teo said the feature means investors do not have to decide upfront the investment duration.
SSB will pay higher coupons if the bonds are held longer, unlike conventional bonds that pay the same coupon rate each year.
"The Singapore Savings Bonds will offer the higher returns of a long-term bond and give what investors call a 'term premium', while retaining the flexibility of a shorter-term deposit, and the safety of an instrument guaranteed by the Government," said Mrs Teo at the Investment Management Association of Singapore's (Imas) 16th annual conference at Raffles City Convention Centre.
"As the name suggests, we hope that the Singapore Savings Bond programme will encourage individuals to save and invest to meet their long-term financial goals and retirement needs."
Details are still being worked out between the Government and the Monetary Authority of Singapore, which issues bonds or Singapore Government Securities (SGS) on behalf of the Government.
SGS, with maturities from two to 30 years and coupon rates of between 1.625 per cent and 3.375 per cent, are a major form of investment for big investors here.
They have been available to retail investors but have not been popular, owing to a lack of awareness or interest, said analysts. The minimum sum needed to buy these bonds is about $1,000.
"It may be safe but the average investor sees what is available in terms of yields and that's not very attractive, so the stepped-up coupon is a clever way of addressing that," said Mr Nicholas Hadow, Imas' chairman and also director of business development at Aberdeen Asset Management Asia.
Markets and investors are set to benefit. Ms Madeline Ho, the head of wholesale fund distribution for Asia-Pacific at Natixis Global Asset Management, said: "The Singapore Savings Bond offers a good, simple and flexible investment option for individuals as well as another alternative to existing available investment options."
Retail investor G.H. Goh, 54, a vice-president of sales in a multinational corporation, welcomed the plan though he wanted to know how the returns compare with alternative assets.
"Anything that can provide decent returns in the current low interest rate environment is good. It is long overdue and we are still waiting to see if there will be inflation-linked government bonds."
A minute's silence in honour of Singapore's first Prime Minister Lee Kuan Yew was observed at the conference.