SINGAPORE - Buyers of a new type of government bond to be issued this year can pay only cash for now but the Government may consider allowing the use of Central Provident Fund savings, Senior Minister of State for Finance Josephine Teo said yesterday.
Mrs Teo told Parliament that the Government will also look at letting people use funds from their Supplementary Retirement Scheme (SRS) accounts to buy the Singapore Savings Bonds. These bonds will be launched in the second half of this year as part of moves to make low-cost investment options more widely available to retail investors.
A key feature of the product is that a bondholder can get his money back in any month with no penalty imposed. This means investors do not have to decide upfront the duration of their investment.
Mrs Teo, who was responding to MPs who had asked about allowing CPF or SRS savings for bond purchases, said it "makes sense to start the savings bonds with cash purchases as it complements the CPF scheme".
Each individual can apply for up to $50,000 per bond issue and can hold up to $100,000 worth of the bonds at any point. The Government will review these caps after the programme has been in place for some time, Mrs Teo said.
The interest rates paid by the Singapore Savings Bonds will be higher than that of short-term fixed deposits but lower than that of longer-term CPF funds.
Her remarks came during the second reading of the Government Securities (Amendment) Bill, which was passed yesterday. It allows the Government to impose restrictions on transfers and pledges in future new security issues, a change that will allow the Singapore Savings Bonds to be issued as non-tradable securities. This is necessary to protect investors from capital losses, Mrs Teo said.
Normally, bonds have a fixed interest rate and investors can find themselves out of pocket if they redeem them early and the market price is less than their initial price.
The interest rate for Singapore Savings Bonds will be linked to the long-term Singapore Government Securities (SGS) rates. But unlike SGS bonds, which pay the same interest rates every year, the new product will start with smaller interest rates that will keep rising the longer you hold on to it.
Singapore Savings Bonds will be transferable to beneficiaries if a bondholder dies, Mrs Teo said.
Mr Liang Eng Hwa (Holland-Bukit Timah GRC) and Mr Patrick Tay (Nee Soon GRC) asked if the Government might consider issuing inflation-linked bonds. Mrs Teo said the Singapore Savings Bonds will offer a safe savings option for individuals while also allowing them the flexibility to redeem their bonds in any given month. While the bond is not inflation-linked, the full redemption feature allows bondholders to mitigate the risks of soaring inflation and higher interest rates, she said.
When market interest rates fall, bondholders will benefit. On the other hand, when interest rates rise, bondholders can make use of the early redemption feature to redeem their bonds. They can then reinvest the proceeds in the new issues. Interest received on the bonds will be tax exempt, she added.