Thursday, September 24, 2009

investing in bonds

Lending money and charging interest is a sure way of growing your money. But if you feel guilty about doing this to people you personally know, then investing in bonds might be the right thing for you. Basically, bonds are debt instruments where you, the investor, will receive interest on the money you lend at a specified time. Bonds are issued by large corporations and governments to raise much needed capital. They issue bonds that are worth billions of pesos and these are snapped up by investors looking for ways to grow their money. Well, you don't just go the the CEOs and tell them, "Hey, I'm willing to lend you 10000 pesos at 5% interest." A better way would be to invest in bonds through mutual funds or UITFs. These companies pool the investments of many investors and then purchase the bonds worth millions. They then distribute the interest earned back to their investors. Investing in bonds through mutual funds or UITFs would offer diversification since they invest in bonds issued by many corporations. You would not want to lend all your money to a single company and lose all of it should it decide to default on its obligations, as in bankruptcy. Bonds are also less risky than stocks. Take note that in case of bankruptcy, corporations are obliged to pay the bondholders first before the stockholders.

I would still recommend the 3 mutual funds when it comes to investing in bonds: They are Philequity Peso Bond Fund, Philam Bond Fund and SunLife Prosperity Bond Fund. For the last 5 years, they have offered 9.4%, 7.9% and 6.7% returns to their investors respectively. UITFs (bond funds) by the big banks of BDO, BPI and Metrobank also offer similar returns. BPI and Metrobank though have higher initial investment requiremnts at 50000 pesos. As always, past performance does not guarantee future results and bonds can also decrease in value. So always remember to spread out your investments and don't transfer all of it to the best performing fund for the year.

No comments:

Post a Comment