Is Fixed Income a Good Investment in Singapore?

Are you looking for ways to make your money work harder while minimising risk? Yet, you feel uneasy about the ups and downs of the financial markets? You’re not alone. Fixed income investments offer the potential for security and consistent, predictable income with low risk. 

But are they the right choice for you? 

In this article, we’ll examine the benefits and drawbacks of fixed income investments, and explore an option that could simplify your investment journey.

What are Fixed Income Products?

Fixed income products are financial instruments that provide investors with a steady stream of income over a specified period. These investments typically offer a fixed interest rate and return the principal amount upon maturity. They’re designed to provide a reliable income source for those seeking to diversify their portfolio, making them popular among risk-averse investors who want to reduce their exposure to the volatility of financial markets.

Common Features of Fixed Income Products

What are some of the key features of fixed income instruments that you should look out for? 

• A predetermined interest rate that remains constant throughout the investment term
• A fixed investment term, ranging from a few months to several years
• Regular interest payments – usually monthly, quarterly, or annually, or a lump sum at maturity
• Lower risk compared to equity investments
• Some form of collateral or asset backing the investment (e.g. land, property, financial assets, or intellectual property)

Types of Fixed Income Products

The types of fixed income products vary. Some are tailored for long-term savings goals, while others cater to those seeking regular income to supplement their earnings or support retirement.

Here are a few examples:

• Regular fixed income: Offers a predictable income stream at regular intervals, such as monthly or quarterly payouts.
• Tax-saver fixed income: Allows investors to potentially reduce taxable income by investing in specific fixed-income instruments.
• Cumulative fixed income: Reinvests the interest earned, allowing your investment to grow over time.
• Non-cumulative fixed income: Pays out the interest regularly, providing a steady income stream for those who require regular cash flow.
• Corporate bonds: Companies in Singapore issue corporate bonds to raise funds for business expansion, capital expenditure, or refinancing existing debt. 
• Real Estate Investment Trusts (REITs): REITs are companies that own and manage income-producing real estate. They distribute a portion of their income as dividends to investors, providing a steady income stream similar to fixed income securities. 
• Money market instruments: Short-term, low-risk instruments that provide liquidity and stable returns. They may be issued by various financial institutions.

How Do Fixed Income Products Work?

The mechanics of fixed income products are straightforward. When you invest, you lend money to the issuer for a specific period. In return, they promise to pay you interest at regular intervals and return your principal at the end of the term.

Interest Rates

Interest rates on fixed income products are influenced by various factors, including:

• Current economic conditions
• The issuer’s creditworthiness and financial stability
• The investment term – longer terms typically offer higher rates
• Prevailing market interest rates

Maturity

When your investment matures, you usually have the option to reinvest or withdraw your funds entirely. Some products offer automatic renewal options, which can be convenient for hands-off investors, while others require you to make an active decision about reinvestment.

Pros of Fixed Income

1. Certainty and Stability: Fixed income investments provide a level of security that the volatile world of stocks and commodities does not. This stability can be particularly appealing during economic downturns.
2. Predictable Returns: With fixed interest rates, you can calculate exactly how much your investment will grow over time, making it easier to plan for specific financial goals. For instance, if you intend to buy a home in five years, you can choose a fixed income product with a five-year term and know exactly how much your funds would've grown by then.
3. Ease of Investment: Unlike actively managed investments that require constant monitoring and decision-making, fixed income products are relatively hands-off once you’ve made your initial investment. This is ideal for investors who prefer a “set it and forget it” approach to wealth building.

Cons of Fixed Income

1. Lower Liquidity: Most fixed income products lock in your money for a set period. Withdrawing funds early often incurs penalties, which can eat into your returns.
2. Inflation Risk: While fixed returns provide stability, they may not keep pace with high economic growth or rising prices. Over time, this can erode the purchasing power of your investment. For example, if your fixed income product yields 2% annually, but inflation is running at 3%, you’re effectively losing 1% in real terms each year.
3. Opportunity Cost: By locking your funds into fixed income products, you might miss out on potentially higher returns from other investments. If the stock market is doing well, your fixed income investment would continue to earn the same rate while stock investors might see significant gains.

BigFundr: An Attractive Fixed Income Short-Term Investment Option

Fixed income investments are often seen as a cornerstone of a balanced portfolio, providing stability and predictable returns. However, traditional fixed-income products can be subject to interest rate fluctuations and market volatility. Innovative platforms like BigFundr are emerging to offer investors an attractive alternative.

BigFundr is an MAS-licensed fintech platform that connects investors with real estate projects. It allows individuals to lend money to developers for short-term periods, and in return, investors receive fixed interest returns. The platform is designed to democratise real estate investing by offering low minimum investment amounts and a focus on low-risk projects.

How BigFundr Works

BigFundr offers short-term investment options that provide consistent returns with interest rates typically exceeding 6%* nett per annum. Investors can choose from a range of available real estate projects on the BigFundr platform. Once an investment is made, the funds are pooled with other investors to provide a loan to the developer. The loan term is typically short-term, and upon maturity, investors receive their principal and interest. 

What Type of Investor Benefits from BigFundr?

• Conservative investors seeking better returns without significantly increasing risk
• Those looking to diversify their investment portfolio and reduce their exposure to financial market fluctuations
• Investors nearing retirement who want to balance growth and security
• Anyone seeking a passive income stream with more flexibility than traditional fixed income products

Let’s look at an example:

Sarah, a 55-year-old nearing retirement, seeks to grow her $200,000 funds without exposing herself to high risk. Traditional fixed income products offer security but with returns that do not keep up with inflation. BigFundr is an attractive option, offering steady income with growth potential.

With a hypothetical 2% annual return on a traditional product, Sarah’s $200,000 would grow to $220,816 in five years. BigFundr’s potential 6% return could increase this to $267,646, yielding a surplus of $46,830.

Balance Security and Growth with Big Fundr

While fixed income products offer stability and predictability, they come with limitations that may not suit all investors. BigFundr presents an innovative alternative, combining the consistency of fixed income with enhanced flexibility and potential for better returns. 

Nonetheless, as with any investment decision, it’s crucial to consider your financial goals, risk tolerance, and overall portfolio strategy. BigFundr’s approach to low-risk, short-term investments offers an option for those seeking to balance security with growth when investing in Singapore.

To find out more about BigFundr, visit our Getting Started Page.

*As of December 2023, interest rates may vary due to market conditions.