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Savings Bonds draw diverse but small investor pool: MAS data

Thursday, April 21, 2016 - 05:50

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Half a year after the first Singapore Savings Bonds were offered, the investment instrument has reached a diverse but still tiny pool of investors, according to data released by the Monetary Authority of Singapore (MAS) on Wednesday.

Singapore

HALF a year after the first Singapore Savings Bonds were offered, the investment instrument has reached a diverse but still tiny pool of investors, according to data released by the Monetary Authority of Singapore (MAS) on Wednesday.

Acknowledging that the penetration rate could be higher, MAS plans to step up efforts to raise awareness of the product, especially to those who have retirement on their minds.

About 32,000 individuals have invested S$810 million after six offerings of the Savings Bonds, which are puttable government-issued bonds aimed at encouraging Singaporeans to save and invest for retirement.

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The numbers suggest a shallow penetration rate for the product. In terms of Singaporeans who have some kind of retirement savings, the bondholders represent just 0.9 per cent of the 3.6 million current CPF members.

In terms of Singaporeans who are keen on investing, the participation rate is not that much better. There were about 906,294 Central Depository (CDP) accounts with holdings in 2015. Based on industry estimates that about 80 per cent of CDP accounts are held by retail investors, Savings Bondholders probably account for less than 5 per cent of CDP accounts that actually have holdings.

But the Savings Bond can at least claim to reach a broad spectrum of the eligible population. MAS's data showed that investors across all age groups have bought Savings Bonds.

The spread of application amounts shows that about 49 per cent are for sums of S$10,000 and below, compared to 25 per cent for S$40,000 to the maximum of S$50,000. Also, 19 per cent of Savings Bondholders had recently opened CDP accounts, which suggests significant participation from retail and first-time investors.

"These are encouraging developments as Savings Bonds are intended to be a safe, flexible and long-term instrument that would be suitable for new investors," MAS said in its report.

MAS hopes to promote greater awareness of the Savings Bond among investors who are saving towards retirement or who are retiring.

"Many have not heard of Savings Bonds or do not understand its features," the agency said in response to BT queries. "We will raise awareness and understanding of Savings Bonds through publicity campaigns and by working with partners such as MoneySENSE and community groups to organise sharing sessions at financial planning events and community gatherings."

The Savings Bond programme was first announced in March 2015. The 10-year bonds may be redeemed every month with no penalty, and the return upon redemption will be equivalent to a Singapore government bond that was bought one month before the Savings Bond was issued and that matures on the redemption date.

The first monthly offering took place in September 2015 for an October issuance. The programme has offered S$4.8 billion of Savings Bonds so far in six offerings, and the seventh offering, of S$300 million for May issuance, will close on April 26 at 9pm.

That the take-up rate is low relative to the amount offered is not reflective of missed "targets", MAS said.

"The fluctuation in the monthly subscription amounts is dependent on the attractiveness of the interest rates of Savings Bonds relative to comparable products," the agency said in its report.

"During this period, banks have been offering attractive promotional interest rates on fixed deposits and some deposit accounts. This is a good development as a more competitive market gives individual investors more options and higher returns."

Providend director of advisory Vincent Tey described the Savings Bonds as "very innovative", but said that clients have not been keen on the product when faced with relatively attractive fixed-deposit rates.

The freedom to redeem every month without penalty offered only limited utility.

"Some of the clients, the buying and selling is too much of a hassle for them," Mr Tey said.

The Savings Bonds also do not offer commissions or incentives for distribution agents, and there have been comments that relationship managers or salespeople at banks have less of an incentive to promote Savings Bonds than other products that are more profitable for the salespeople.

However, Tan Siew Lee, OCBC Bank head of wealth management Singapore, said: "We see the Singapore Savings Bonds as complementary to our existing product shelf. Our approach to financial planning for our clients has always been from a portfolio perspective, where we adopt an appropriate asset allocation across different products after understanding their financial situation and objectives. All our sales staff are briefed on the key product features of the Singapore Savings Bonds and will share information about it with customers if asked."

A United Overseas Bank spokesman said: "When it comes to selecting a suitable investment product, our relationship managers make recommendations based on our customers' financial goals, liquidity needs and risk appetites before adopting an investment strategy which customers are comfortable with."

DBS declined to comment.

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