SGS: An alternative to fixed deposits
[Saturday, January 17, 2009
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This post is part of a series of posts that discuss about SGS in detail. To access the other posts in this series, click here.
As compared to SGS treasury bills and bonds, fixed deposits is the more widely known product that is known to carry very little or no risk. This is because most of us are aware that the Singapore Goverment currently guarantees the money that you deposit at the bank up to a certain amount. However, not many people know about SGS. SGS has some distinct advantages which makes it a superior form of investment over fixed deposits in its class that is suitable for conservative investors.
1. Superior returns
SGS treasury bills and bonds are likely to offer a better rate of returns as compared to fixed deposits. I have attached a chart of the historical yield of SGS bonds with an average year to maturity of 2 years.
Chart taken from fundsupermart
If you take a closer look at the chart, you will realize that the yield for the SGS with an average year to maturity of 2 years.is rather attractive as compared to fixed deposits. Furthermore, the lowest yield for the SGS, which is slightly less than 1% is comparable than the yield offered by fixed deposits, which is generally below 1%. There were also instances where the yield of the SGS with an average year to maturity of 2 years is even greater than 3% and at its highest point, the yield has gone up to more than 4% before. This shows that generally, SGS treasury bills and bonds offer a better yield than fixed deposits.
2. No locked-in period
As compared to fixed deposits which has a locked-in period, SGS treasury bills and bonds have no locked-in period. You can always choose to sell your SGS treasury bills and bonds in the secondary market before maturity. However, since the price of SGS such as the treasury bills or bonds can fluctuate, there is a chance that you will make a small loss if the price that you sell your treasury bills or bonds is lower than your purchase price. If your selling price is higher than your purchase price, that will bring me to my new point.
3. Potential Gains
Since one is able to sell SGS treasury bills and bonds on the secondary market, if the selling price of your treasury bills or bonds is higher than your purchase price, you will be able to have some capital gains. However, the price of the SGS treasury bills and bonds are usually not so volatile, thus any capital gain is likely to be rather small.
As we can see, SGS treasury bills and bonds have a few distinct advantages over fixed deposits and one should seriously consider them over fixed deposits. In my next post, I will be covering on how one can go about in buying SGS treasury bills and bonds.
