Passive Investment Strategy In Singapore Savings Bond

Singapore Savings Bond Task for one of the strategy or policy selected and approved

Discuss about the Singapore Savings Bond Task.

This study deals with identifying one of the strategy or policy under Singapore Savings Bond that is properly selected and approved[1]. In this particular assignment, proper emphasis has been given on selecting a strategy and this is passive investment strategy Singapore Savings Bond. It is desired by every single person that they would like an investment where there is zero risk and high double digit returns with full liquidity. This combination is hard to find but the study would definitely bring out some of the strategy used that will benefit both investor and borrower in long run. The current segment properly explains about investment strategy that is advised to the individual for using for a time span of 10 year to get higher and better returns. Passive investor’s aims at replicating market performance by way of constructing well-diversified portfolios of individual stocks as it is the process that need further extensive research[2].

The investment strategy used by Singapore Savings Bond provides proper insights of information about bond investments[3]. The discussion here about strategy selected and approved by Singapore Savings Bond and this is investment strategy that will be discussed in the next segments.

The features of Singapore Savings Bonds as follows:

• Liquidity- One of the features of Singapore Savings Bonds is liquidity and this means flexible redemption. Here, the money is kept in the Singapore Savings Bonds for as long as needed. At the time of withdrawal, the funds can be transferred back within a period of month and there will be no charge of penalty.
• Safety- One of the features of Singapore Savings Bonds is safety and this means guaranteed principal. Individuals will always get investment amount back in full that include earned interest with no capital losses[4].
• Higher returns- One of the features of Singapore Savings Bonds is higher returns this means up to 90x more interest as compared to banks. Here, the interest earned increases from 0.9% to 3.4% as it depends on how long an individual had invested such as maximum of 10 years.
• Limits- One of the features of Singapore Savings Bonds is limits that mean low minimums. These good features as well as returns means investing that is capped at $50,000 per purchase as it is the issue limit and overall limit is $1,00,000 total.
• Lower fees- One of the features of Singapore Savings Bonds is low fees that means flat application fees. Here, the bank charges a transaction fee of $2 for each of the applications as well as redemption request[5].

• Key objective of passive investment strategy Singapore Savings Bond is that individual get dependable cash flow for a period of 10 years. Here, the interest payments will be paid for every 6 months that will be on time, every time and tax-free
• Key objective of passive investment strategy Singapore Savings Bond is that individual will get back principal and 100% of capital investment at maturity where no early termination of bond investment are done by the issuer [6]
• Investment is guaranteed. The principal investment done by an individual in Singapore Savings Bonds will be guaranteed by the Singapore Government as it means transferring money under the pillow to Singapore Savings Bonds.
• Reducing transaction costs [7]
• Eliminating the hassle of frequent transactions
• Eliminating reinvestment risk at the time of tenure of bond investment

One of the positive factors is passive bond investment strategy of Singapore Savings Bond where the investment strategy is the simplest plan that should be adopted by both men as well as women in the retail streets of Singapore. Passive investing is also known as buy and hold strategy that takes into account buying a security with the intention of owing it for many years. Like other active traders, it is noted that passive investors are not attempting for gaining profit from any of the short-term fluctuations or market timing. The principal assumptions underpin the passive investment strategy where the market predominantly posts positive returns for given time span. 

There are several advantages to the passive bond in investment strategy. The first merit is if an individual adopt passive investment strategy, they become a long-term bond investor. The next merit is earning interest for every 6 months of time span and upon maturity; the individual will get the principal as well[8].

There are problem with passive investment strategy in Singapore Savings Bond. The main two root problem is interest rate risk and inflation.

• Interest rate risk- One of the problems of passive investment strategy Singapore Savings Bond is interest rate risk. Individuals cannot capitalize on future rise of interest rates within the time span of 10 years of the bond investment[9]. It is due to issuance, it is noted that the rates are fixed based on the prevailing yields as well as locked in for each of the issues. For instance, individuals you purchase Singapore Savings Bond this year at Y% per annum, then will get interest rate increase to Y+1% per annum in the following year. Here, the individual will be losing out potential earned interest income.
• Inflation risk- One of the problems of passive investment strategy Singapore Savings Bond is inflation risk. The interest income earned by individuals may not be able to beat inflation over the time span of 10-year bond investment term.

The above figure shows that after investing in Singapore Savings Bond, interest will be based on 1 year SGS yield at the point individuals purchase the savings bond at 0.9% per annum. For the second year, individual will earn an interest at 1.5% per annum that is higher than the 2-year SGS yield at 1.2% per annum. For the 10^th year, the Singapore Savings Bond pays an interest at 3.3% per annum. This means that the total return or average interest on the investment at 2.4% per annum that matches on what individuals have received and bought 10-year SGS at the time of investment activities.

Key objectives and major stakeholders affected and their interests

Sustainable investing is more about driving positive social or environmental impact that goes along to derive financial results as it allows investors for accomplishing more with their money. Sustainable passive investment is all about smart investing. It is important for the investors to adjust their financial goals for in order to invest for a common purpose. Here, the sustainable funds are designed for meeting the performance features of traditional investments at the time of targeting specific social impact objectives like reducing the carbon footprint of an investment portfolio in the most appropriate way[12].

The future risk associated to passive investment strategy Singapore Savings Bond will be interest rate risk and inflation risk. In case of passive investment strategy, it is noted that the manager of the funds are not seeking to produce returns greater as compared with the benchmark as it is the goal for matching the level of performance. Passive investing is not only less risky but it is rather it is more risky. Passive investing can be termed as the opposite of aggressive investing activities. The risk is associated with the lower fees, liquidity as well as transparency and tax efficiency. The risk identified need to be reduced so that individual feels safe to invest money on Singapore Savings bonds in the near future[13].

The risk identified above can be improved in the near future. Here, passive investment strategy involves buy and hold investor who are looking for maximizing the income that is generated at the time of bond generation[15]. It is mostly presumed by the investor that passive investment strategy is safe as well as predictable sources of income. It is suggested for the investors who opts this strategy to change in the income stream because of embedded options that are mentioned in the bond’s covenants at issue as well as stay with the bond of life. The strategy used will be good for the lender but bad for the borrower. Hence, the strategy should be a used in a way after looking at the demerits first so that the investment strategy can be beneficial in the near future.

In order to execute passive bond investment strategy, it is recommended to the individual to first decide on how much money will be invested in Singapore Savings Bond. It is suggested to hold the Singapore Savings Bond until maturity of 10 years. The decisions need to be taken after considering personal financial situations. In order to undertake decisions, it is important to perform a financial needs analysis and if anyone is still unsure, then it is recommended to consult qualified personal financial advisor.

Conclusion

At the end of the study, it is concluded that passive investment strategy of Singapore Savings Bonds had been selected and approved that give proper emphasis upon facts that will benefits individuals who are willing to put their money. The above analysis gives proper explanation about the merits and demerits of investing money in Singapore Savings Bonds. The characteristics of passive investment are explained in the study with proper justification at the same time. Risk is associated with this strategy but proper recommendations are also highlighted in the current segment that can mitigate the risk as far as possible.

References

"Tablebuilder.singstat.gov.sg". in , , 2017, <https://www.tablebuilder.singstat.gov.sg/> [accessed 1 November 2017].

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