Thursday, 24 January 2008

What are Treasury Bills And How You Can Use It?

I got this email from Philips Capital and I just re-post it here. I believe some of you might have received this email as well. Before you are in a hurry to delete it, let’s spend some times to see how it can benefit us? Well, at this period of time where we are unsure which way the market is heading to, though it seems we are most likely to head towards a soft economy; this might be a good alternative fixed income investment for risk adverse investors.

Singapore Government Securities (SGS) Treasury bills (T-bills) are short-term debt securities that are issued by the Singapore Government. The tenors for Treasury bills range from as short as 7 days up to 1 year.

Treasury bills are a very useful and low risk investment tool that everyone should take advantage of.

How you can make use of Treasury bills?

Given the current yield of 1.52% p.a. (Rate is based on a 3 month T-bill and is accurate as of 23 Jan 2008.) for a 3 month T-bill, it is definitely much better than the interest given by normal saving deposits (Based on rates of UOB Passbook Saving Account, OCBC Passbook Saving Account, and DBS Auto-save (Personal) Account. Rates are taken from respective websites and accurate as of 16 Jan 2008.).

Given the flexibility of selling away your T-bills at any time, you will be able to liquidate your investment when you need the money. You can even choose to liquidate just part of it (in multiples of 1000 units).

While some fixed deposits might be offering a higher interest as a promotion, they usually require you to lock up your deposit for the entire tenure, and require a minimum investment of quite a significant sum. Unlike them, T-bills only require a minimum investment of less than $1000. If you are unwilling to lock-up a huge chunk of your funds in fixed deposits, T-bills will be suitable for you.

For equities investors, you can make use of T-bills as well. During occasions where you are staying at the sidelines, waiting for the next opportunity to make a killing, you can park your spare cash in T-bills to earn some interest. Make your money work harder for you.

How Treasury bills work?

Treasury bills have a fixed maturity date and have zero coupons. This simply means that during the tenor, the owner of the Treasury bill will not be receiving any interest payments. Instead the Treasury bills are sold at a discount and redeemed at par value upon maturity. That is why Treasury bills are also known as pure discount investment instrument.

Suppose you purchase 1000 units of a 1-year T-bill at a yield of 2%.
You will only need to pay $980 and you will receive $1000 upon maturity a year later.

Similarly for 1000 units of a 3-month T-bill at a yield of 2%, you will only need to pay $995 and you will receive $1000 upon maturity 3 months later.

To find out more on how you can start investing in Treasury bills, please visit
here, email or call 6531 1555.

By the way, I do not get any benefits from Philips Capital for helping them to post this here in my blog. I just find this could be an alternative means of fixed income investment to grow your money, at least at this period of time when market is going up and down like a rollercoaster.


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