Fixed Income Securities

FIXED INCOME SECURITIES
Investing in fixed income securities

- Purchase of big-ticket items. For a Php5,000 capital per month, in regular SA with a
0.25% interest rate PA will have a future value Php 613,438.60. For FIS with an
average interest rate of 6%, will have a future value of Php 847,252.80
- “hedging” strategy against high-volatile asset classes
- Safe-haven investment during economic recession
- Maximizing profitability against future expense
- Tax shield
- No “expert” skills needed
Financial Pyramid
High risk investments
 Legacy
 Crypto, equities, forex, alternatives
 Property and real estate, capital venture
Low-risk investments
 Fixed income securities
 Unrestricted savings fund
 Emergency fund
 Protection fund/asset
Different types of fixed income securities

 Time Deposit
o Is a fixed-term, interest bearing bank account. The shortest term is a 30-day
period and the longest could be a year or more. The funds should be held for the
chosen term in order to receive the full interest payment.
o Typically, a time deposit has a higher interest for significant amount of
investment and for a longer tenure.
How to get earnings in a time deposit?

Principal amount x Interest Rate x Duration (tenure/tenor)
Example:
Interest Rate = 4.50% per year (PA)
Investment Duration = 180 days/365 days
Withholding tax – 20% of interest rate
 Money Market Funds

o It is a mutual fund investment which combines different asset classes and
managed by professional fund manager. It has a modest return but highly liquid,
and can be for a flexible investment duration
o 2 basic types (Philippine Financial Market Setting)
 Unit Investment trust fund (UITF)
 Minimal amount of investment required
 Offered by bank
 Regulated by the bangko sentral ng pilipinas
 Investment is called Net Asset Value per Unit (NAVPU)
 Mutual Fund (MF)

 Requires significant amount of investment
 Offered by non-bank investment companies
 Regulated by the SEC
 Investment is called Net asset value per share (NAVPS)
o Exchange Traded Fund

o Is also a type of money market fund investment but this time, it is a
mix of UITF and Mutual Funds. The combined funds are then traded
at the Philippine Stock Exchange (PSE). This is an index fund type of
investment.
o Variable Universal Life (Insurance Policy)

o is an investment combining the security (protection) benefit of a
traditional life insurance together with growth potential of a Fixed
Income Securities.
o Commonly taken out by individual investors, or if by any institution,
usually to protect the interests against the loss of the individual, due to
a unique talent or skills.
o Home Development Mutual Fund (HDMF) or the Pag-ibig MP2

o Is a 5-year Fixed Income Security investment that provides a one-time
dividend payment on the maturity date.
o It often provides a higher rate compared to other similar investment
like bonds or mutual funds
Example:
Year Rate
2021 5.66%
2020 6.12%
2019 7.23%
2018 7.14%
2017 8.11%
2016 7.43%
o PERA (Personal Equity and Retirement Account)

o Is a voluntary retirement savings program that supplements the
existing retirement benefits from the Social Security System (SSS),
Government Service Insurance System and employers.
 Bonds
o These are investment on debt instrument or debenture, issued by a government, or
any of its department, agencies, bureaus or units, or by a public or private
corporation.
Issuer:
o Government (Sovereign Bonds)
o Company or Corporation (Corporate Bonds)
Investment Duration:
o Intended for long-term but can be bought and sold at the secondary market at
any time after the issue date.
Examples:
o Treasury Bills or T-Bills (1year or less)
o Treasury Notes or T-Notes (1year or more)
o Retail Treasury Bonds (10 years or more)
Elements of Bonds:
o Issuer (Borrower)
o Bondholder (Lender, Investor)
o Principal Amount/Face value
o Coupon rate
o Coupon Frequency
o Announcement Date
o Issue Date/Settlement Date
o Accrued Interest
o Ranking
o Guarantor
o FIGI. ISIN
Illustration:
o Principal Amount: 1,000,000
o Maturity Date: Debruary 29, 2032 (10 years)
o Coupon Rate: 4.875%
o Coupon Frequency: 2x
o Purchase Date: February 20, 2022
o Issue Date: February 25, 2022
o Sale Date: June 25, 2023
Annual Interest Rate: 48,759 (1,000,000 x 4.875%)

Interest Payment each Coupon Frequency: 24,375
Coupon Frequency: Every 6 months from issue date
1st payment date: 2nd payment date:

August 25, 2022 February 25, 2023
February 25, 2023 August 25, 2023
Sale Date: June 25, 2023 (4 months accrued interests)
Accrued interest on the date of the SALE: 16,250 (FAxCRx4.12) = Accrued

interest)
SALE AMOUNT OF BONDS = 1,016,250 (Principal + Accrued Interests)
ACTUAL BOND PRICE = FACE AMOUNT + [(FA X CR) X Maturity Date ]

ACTUAL BOND PRICE = 1,000,000 + [(48,750) X 10 years]
ACTUAL BOND PRICE = 1,000,000 + 487,500
YEAR 10 ACTUAL BOND PRICE = 1,487,500
Bond yield Curve:

o It is a visual presentation of the bond yield over different maturity periods. It
gives us a glimpse of the bonds purchased over different periods before the
maturity date. Bonds may differ in value in the secondary market as there are
factors that affect their overall pricing. The yield curve also tells us how the
market perceives the bond investment and typically tells us the general health
of the economy.
Investment Amount = 10,000

CR/IR BOND YIELD BOND YIELD
(PHP)
Philippine T-Bills BYC% = Coupon Rate/Bond Yield (PHP)
1 month 1.1200% 10,0009.33 0..1119%
3 months 1.1200% 10,028.00 0.01117%
6 months 1.4700% 10,073.50 0.01459%
Philippine T-Notes:
9 months 1.1500% 10,086.25 0.01140%
12 months 1.1200% 10,112.00 0.01108%
18 months 1.4700% 10,220.50 0.01438%
Philippine Treasury Bonds
3 years 4.8750% 11,462.50 0.04253%
5 years 4.8750% 12,437.50 0.03920%
7 years 4.8750% 13,412.50 0.03635%
Factors Affecting Bond Prices:

- Interest or coupon Rates
- Maturity
- Provisions
- Credit Rating
- Reinvestment
- Macroeconomic
- Market Psychology
- Laws and Regulation
- Profitability
- Industry or political outlook
- Currency Denomination

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FIXED INCOME SECURITIES

Investing in fixed income securities

Different types of fixed income securities

How to get earnings in a time deposit?

 Money Market Funds

 Mutual Fund (MF)

o Exchange Traded Fund

o Variable Universal Life (Insurance Policy)

o Home Development Mutual Fund (HDMF) or the Pag-ibig MP2

o PERA (Personal Equity and Retirement Account)

Annual Interest Rate: 48,759 (1,000,000 x 4.875%)

1st payment date: 2nd payment date:

Accrued interest on the date of the SALE: 16,250 (FAxCRx4.12) = Accrued

SALE AMOUNT OF BONDS = 1,016,250 (Principal + Accrued Interests)

ACTUAL BOND PRICE = FACE AMOUNT + [(FA X CR) X Maturity Date ]

Bond yield Curve:

Investment Amount = 10,000

Factors Affecting Bond Prices:

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