Small investors could get bonds on their menu

The man in the street could soon be offered another avenue to grow his money: Investing in bonds.

Proposed changes include making bonds more accessible to the average investor by offering them in smaller lots.

Bonds are a form of borrowing by companies and governments for which bondholders are generally paid a steady interest rate or coupon. While they are generally seen as a safe investment with fixed, regular returns, not many are available for retail investors.

Often, $250,000 is needed just to get started, which means that usually, only sophisticated and wealthy investors tend to dabble in them.

This is set to change, as the Monetary Authority of Singapore (MAS) and the Singapore Exchange (SGX) seek public reaction to the new proposals.

Currently, only a handful of retail bonds are traded on SGX - like one issued by Singapore Airlines that offers a coupon rate of 2.15 per cent.

In seeking to broaden the choice, one key proposal is to offer existing bonds to retail investors after they have been listed on SGX for six months.

These so-called "seasoned bonds" could be redenominated into smaller lot sizes to be sold to smaller investors.

Subsequent offers of new bonds to retail investors, with the same terms as the seasoned bonds, would be exempted from prospectus requirements. This could help ease costs for companies issuing the bonds.

However, safeguards would still be in place to protect retail investors. For example, issuers would have to explain bond features and risks, and only "plain vanilla" bonds with a term of up to 10 years would be eligible.

Said MAS managing director Ravi Menon: "These proposals are part of MAS' overall efforts to improve retail access to simple investment products that give decent returns without too much risk."

Industry players have reacted positively to the proposals.

"Retail investors are not all gaining in stocks, and the fixed deposit interest rates they get can't even keep up with inflation," said Securities Investors Association (Singapore) president David Gerald.

Last month, the average fixed deposit rate among banks was 0.31 per cent for 12 months. Bonds generally pay higher returns although the price of a bond will fluctuate like that of a stock.