How to Invest in Fixed Income Securities in the Philippines

Last Updated – Nov 5, 2023 @ 12:19 pm

Looking to expand your investment options beyond stocks and traditional savings accounts?

Diversify your investment portfolio by investing in fixed income securities. This allows you to preserve your funds and earn a bit more money by lending to the government or corporations. 

Fixed income securities may not be as popular as other investment types in the Philippines, but they’re also worth looking into. 

What exactly are fixed income securities and why should you invest in them? Keep reading to find out.

What is a Fixed Income Security? 

A fixed income security is a low-risk investment that provides a regular source of passive income (in the form of interest or dividend payments) and returns the amount invested at the end of the term. 

This investment is called “fixed income” because it allows an investor to earn income on a fixed schedule.

When you invest in fixed income securities, you’re lending money to the government or a corporation, which will pay it back to you with interest.

Ideal for funding short-term goals or capital preservation, a fixed income investment grows funds regardless of price fluctuations in the market. The income earned is just modest but is higher than a traditional savings account.

Related: How to Invest & Grow your Money

Types of Fixed Income Securities

Fixed income instruments issued in the Philippines are in the form of commercial papers, promissory notes, bills, notes, or bonds.

Here are your options if you’re interested in this kind of investment.

1. Government Securities

Government securities are debt instruments issued by the Philippine government through the Bureau of the Treasury (BTr), an agency under the Department of Finance that’s mainly responsible for the national government’s financial assets. 

These risk-free, highly liquid instruments are issued to make funds available for government spending on healthcare services, education, infrastructure, and other programs and projects.

Government securities are the safest type of investment because they’re fully guaranteed by the national government, backed by its full taxing power. Investors can expect to receive their principal upon maturity. Government securities can also be used as collateral for a loan.

However, this type of fixed income securities pays the lowest return.

The most common types of government securities are fixed rate treasury notes, treasury bills, and retail treasury bonds.

Fixed Rate Treasury Notes

Investment horizon: Medium to long-term
Term: 3 to 25 years
Minimum investment: Php 50,000 to Php 200,000
Interest rate: Based on the prevailing market rate
Interest payment: Semi-annually

Fixed rate treasury notes (FXTNs) pay interest to the investor every six months. Interest payments are subject to 20% final withholding tax. Upon maturity, the investor receives the principal and the last interest payment.

Treasury Bills

Investment horizon: Short-term
Term: 91/182/364 days
Minimum investment: Php 50,000 to Php 200,000
Interest rate: Based on the prevailing market rate
Interest payment: None (issued at a discount)

Treasury bills, also called T-bills, are the most actively traded zero-interest debt instrument with a maturity of less than a year (three, six, or nine months). 

T-bills are non-interest bearing securities. Instead of receiving interest payments, investors earn income by purchasing T-bills from banks at a discount, whose price is lower than its face value. Upon maturity, the government pays the full face value to investors. 

The return on investment (ROI) is the difference between the buying price and the face value of the T-bill. That amount is subject to 20% final withholding tax.

Retail Treasury Bonds

Investment horizon: Medium to long-term
Term: 3 to 25 years
Minimum investment: Php 5,000 (primary market) | Php 100,000 to Php 200,000 (secondary market)
Interest rate: 4.375% (rate for 2020)
Interest payment: Quarterly

Offered to small investors, retail treasury bonds (RTBs) are higher-yielding and more affordable than other types of fixed income instruments such as FXTNs, T-bills, and time deposits.

They comprise the government’s program that makes government securities accessible to retail investors, hence the name.

For as low as Php 5,000, individuals and corporations can start growing their money (with very low risk of losing it) and receive interest payment more frequently at every three months. The required minimum succeeding investments are at increments of only Php 5,000.

For example, if you invested Php 10,000 in RTBs in 2020, you’ll earn a return of Php 1,050 after three years. This yield is higher compared to that of a time deposit with an interest rate of 1.125%, which is only Php 270.

Like other types of government securities, interest income of RTBs is subject to 20% final withholding tax.

2. Corporate Bonds

Corporate bonds, sometimes called long-term commercial papers, are a form of debt issued by public and private corporations to raise funds for their ongoing operations or business expansion.

They’re available either as Philippine Peso or US Dollar-denominated bonds.

Compared to government securities, corporate bonds yield higher interest because they’re riskier investments. However, they’re not as accessible.

You’ll have to wait for companies to announce their offer of bond investments (usually through newspaper reports) before you can start investing in them.

Corporate bonds are moderately liquid investments, allowing you to buy or sell them in the open market.

Should the company you’re investing in shuts down and declares bankruptcy, you’re prioritized over shareholders when it comes to repayment of principal and interest upon its asset liquidation.

Peso Corporate Bonds

Investment horizon: Medium to long-term
Term: 2 to 15 years
Minimum investment: Php 50,000 to Php 100,000
Interest rate: Based on the prevailing market rate (usually more than 4.75% per annum)
Interest payment: Quarterly or semi-annually

Peso corporate bonds are issued by Philippine corporations that are registered with the Securities and Exchange Commission (SEC).

Some companies that offer bond investments include Ayala Land, Inc., Petron Corporation, San Miguel Corporation, and SM Prime Holdings, Inc.

When you invest in Peso corporate bonds, the company pays you interest every three or six months (subject to 20% final withholding tax).

US Dollar Corporate Bonds

Investment horizon: Medium to long-term
Term: 5 to 25 years
Minimum investment: USD 100,000 or depending on the minimum lot size of issue
Interest rate: Based on the prevailing market rate
Interest payment: Semi-annually

Dollar corporate bonds are issued by either Philippine or foreign corporations in US Dollar denomination. These bonds have higher returns than USD time deposits.

Related: How to Invest in Bonds in the Philippines

3. Certificates of Deposit

Investment horizon: Short to medium-term
Term: 30 days to 7 years
Minimum investment: Php 1,000 to Php 100,000
Interest rate: 0.50% to 3.875%
Interest payment: Monthly, quarterly, or yearly

More commonly known as time deposit accounts, certificates of deposit (CDs) are issued by banks that keep the funds invested for a pre-determined period.

Most CDs pay higher interest than regular savings accounts but pay lower interest than bonds. This makes time deposits ideal for safekeeping your emergency fund.

Because they’re a type of deposit products, time deposits in the Philippines are covered up to Php 500,000 by the Philippine Deposit Insurance Corporation (PDIC).

4. Long-Term Negotiable Certificates of Deposit

Investment horizon: Long-term
Term: Minimum of 5 years
Minimum investment: Php 50,000 to Php 1 million
Interest rate: Typically 4% per annum
Interest payment: Quarterly

Banks issue long-term negotiable certificates of deposit (LTNCDs) to finance their operations or expansion projects. 

These fixed income securities, which are available in Philippine peso denomination, bear a higher interest rate than regular time deposits and other bank deposit products.

Earnings are tax-exempt (as long as the money is kept invested for over five years) and insured by the PDIC up to Php 500,000.

However, what makes LTNCDs different from regular time deposits is that the former can be negotiated on organized exchanges like the Philippine Dealing Exchange (PDEx).

This means they can be traded on the secondary market before the maturity date.

Related: Income Investing: 13 Best Income Generating Assets

5. Preferred Shares

Minimum investment: Php 50,000
Dividend yield: Typically 5% – 10% per annum

Preferred shares, also known as preferred stock, are a type of security that represents ownership in a corporation.

This investment vehicle has a priority claim over common shares on company assets and earnings.

Preferred shares are more senior compared to common stocks but are junior compared to bonds when it comes to claims on assets (in case the business goes bankrupt).

It’s worth noting that preferred shares are prioritized over common stocks when it comes to issuing quarterly/annual dividends. 

Related: Value Investing: Tools, Techniques, & Strategies

Pros and Cons of Investing in Fixed Income Securities

Fixed income investments come with both benefits and risks that prospective investors should be aware of.

Advantages of Fixed Income Securities

• Steady source of income – Regardless of sudden market changes, you’re assured of a stable income stream throughout your investment term.
• Fixed interest payments – As soon as securities are bought, the amount of income and the frequency of payments are known to the investor in advance.
• Low risk – Investing in the Philippine government, in particular, reduces your investment risk and protects against price fluctuations in the market. You won’t lose your money because it’s guaranteed by the government and other institutions with solid financial performance and good records of paying debts.
• Diversification – If your investment portfolio consists mostly of stock investments, you can lower your risk by investing in safer instruments such as government and/or corporate securities.
• Medium to high liquidity – Fixed income securities can be easily purchased and sold on any banking day in the secondary market through brokers like banks.
• Higher returns than savings and time deposit accounts – Fixed income investments may not be as profitable as stocks, but they have higher yields compared to traditional deposit products.
• Affordability – Even beginners can invest in fixed income securities because the minimum investment for retail treasury bonds is just Php 5,000.

Disadvantages of Fixed Income Securities

• Lower returns than stocks – Because they’re conservative types of investment, fixed income securities pay a lower rate than others, especially equities or stocks.
• Slow capital appreciation – There’s a risk that the market prices might rise faster in the future than the interest rate on the fixed income security.
• Inflation risk – The interest rate on the fixed income security may be lower than the inflation rate, which leads to a negative return.
• Risk of not being repaid – Securities are tied to the financial health of the issuing entity. Corporate bonds issued by a company that struggles financially may not be repaid, so there’s a risk of losing the principal and interest.

How much can you make from Fixed Income Securities?

Based on official data, you can earn returns as much as 8% of your investment in fixed income securities.

From 2010 to 2019, T-bills yielded average returns ranging from 2.17% to 2.73%

Over the same 10-year period, T-bonds had yielded average returns ranging from 3.63% to 8%, based on BTr data.

Bond funds managed by mutual fund companies have yielded returns ranging from -0.38% to 5.06% over five years, based on data from the Philippine Investment Funds Association (PIFA).

How to Invest in Fixed Income Securities in the Philippines

Investors can buy and sell fixed income securities in the Philippines through commercial banks and mutual fund companies with trust investment products (See the list below).

Ready to start? Here are the steps you need to take.

Step 1: Inquire at the nearest bank.

Talk to the bank’s account officer or investment specialist to inquire about the fixed income funds they offer. 

Ask for a copy of the product brochure or prospectus and study it at home to understand the fund’s features and requirements.

Alternatively, you can visit the office of a mutual fund company or broker (like COL Financial and First Metro Securities’ FundsMart) to learn about their bond fund offerings and how to start investing in bonds.

Step 2: Open a deposit account.

Once you’ve decided on a government or corporate security, visit the bank to open a new Peso account or assign an existing deposit account as your settlement account.

The settlement account is where your principal will be deducted and where your interest income plus principal will be credited.

Before you go, prepare the requirements first. Actual requirements vary per bank, but here are the most common documents investors need to submit:

• Two valid government-issued IDs
• Tax Identification Number (TIN)
• Proof of account with the bank (such as passbook or checkbook), if with an existing account
• Initial investment amount

Step 3: Fill out the required forms.

You’ll then be asked to accomplish forms, including the following:

• Account opening forms with the bank
• Signature cards
• Client Suitability Assessment Form/Risk Profile Questionnaire Form
• Risk Disclosure Statement
• Order Ticket
• Special Power of Attorney (SPA)
• Other documents required by the issuer

Step 4: Pay the principal amount.

After your account with the bank has been settled, your principal payment will be deducted from your designed bank account. You should receive proof of investment or official confirmation of the transaction from the bank.

Every three or six months until your fixed income investment matures, you’ll receive your interest payments through your settlement account. 

At the end of the term, the last interest payment and principal will be deposited into your bank account.

List of Government Securities Dealers in the Philippines

Before investing in fixed income instruments, make sure to transact only with Government Securities Eligible Dealers (GSEDs). Also called primary dealers, these companies are SEC-licensed and belonging to industries supervised by the SEC, Bangko Sentral ng Pilipinas, and Insurance Commission. 

GSEDs have met several criteria for eligibility to participate in the primary auction of government securities (and acknowledged by the BTr as such). 

Here’s the BTr’s official list of primary government securities dealers in the Philippines.

1. AB Capital and Investment Corporation
2. Asia United Bank (AUB)
3. Australia and New Zealand Banking Group Limited
4. Banco de Oro Unibank, Inc. (BDO)
5. Bank of Commerce
6. Bank of the Philippine Islands (BPI)
7. BDO Capital & Investment Corporation
8. BDO Private Bank, Inc.
9. BPI-Capital Corporation
10. China Banking Corporation (China Bank)
11. Citibank, N.A.
12. Citystate Savings Bank, Inc.
13. CTBC Bank (Philippines) Corporation
14. Deutsche Bank
15. Development Bank of the Philippines (DBP)
16. East West Banking Corporation
17. First Metro Investment Corporation (an investment banking arm of the Metrobank Group)
18. ING Bank
19. JP Morgan Chase Bank
20. Land Bank of the Philippines (LANDBANK)
21. Malayan Bank Savings & Mortgage Bank, Inc.
22. Maybank Philippines, Inc.
23. Metropolitan Bank & Trust Company (Metrobank)
24. Philippine Bank of Communications (PBCOM)
25. Philippine Business Bank
26. Philippine National Bank (PNB)
27. Philippine Veterans Bank
28. Rizal Commercial Banking Corporation (RCBC)
29. Robinsons Bank Corporation
30. Security Bank and Trust Company
31. Standard Chartered Bank
32. Sterling Bank of Asia, Inc.
33. The Hongkong and Shanghai Banking Corporation, Ltd. (HSBC)
34. Union Bank of the Philippines
35. United Coconut Planters Bank (UCPB)

Source: Bureau of the Treasury

List of Banks That Offer RTBs in the Philippines

Only nine companies are recognized as official selling agents of retail treasury bonds in the country:

1. BDO Capital & Investment Corporation
2. BPI
3. China Bank
4. DBP
5. First Metro Investment Corporation
6. LANDBANK
7. PNB Capital and Investment Corporation
8. RCBC Capital Corporation
9. SB Capital Investment Corporation (a subsidiary of Security Bank)

Source: Bureau of the Treasury

List of Banks and Mutual Fund Companies That Offer Bond Funds in the Philippines

Peso Bond Funds

1. ALFM Peso Bond Fund, Inc.
2. ATRAM Trust Corporation
3. AUB
4. Bank of Commerce
5. BDO
6. BPI Asset Management and Trust Corporation
7. China Bank
8. Cocolife Fixed Income Fund, Inc.
9. EastWest Bank
10. Ekklesia Mutual Fund Inc.
11. First Metro Save and Learn Fixed Income Fund, Inc.
12. Grepalife Bond Fund Corporation
13. LANDBANK
14. Manulife Asset Management and Trust Corporation
15. Maybank
16. Metrobank
17. Philam Bond Fund, Inc.
18. Philequity Peso Bond Fund, Inc.
19. Philippine Business Bank
20. PNB
21. Prudentialife Fixed Income Fund Inc.
22. RCBC
23. Security Bank
24. Sun Life Prosperity Bond Fund, Inc.
25. Sun Life Prosperity GS Fund, Inc.
26. UnionBank
27. UCPB

Foreign Currency Bond Funds

1. ALFM Dollar Bond Fund, Inc.
2. ALFM Euro Bond Fund, Inc.
3. ATR KimEng Total Return Bond Fund Inc.
4. ATRAM Trust Corporation
5. AUB
6. Bank of Commerce
7. BDO
8. BPI Asset Management and Trust Corporation
9. EastWest Bank
10. Grepalife Dollar Bond Fund Corp.
11. Grepalife Fixed Income Fund Corp.
12. LANDBANK
13. MAA Privilege Dollar Fixed Income Fund, Inc.
14. MAA Privilege Euro Fixed Income Fund, Inc.
15. Manulife Asset Management and Trust Corporation
16. Maybank
17. Metrobank
18. PAMI Global Bond Fund, Inc
19. Philam Dollar Bond Fund, Inc.
20. Philequity Dollar Income Fund Inc.
21. PNB
22. Pru Life UK Investments
23. RCBC
24. Security Bank
25. Sun Life Prosperity Dollar Abundance Fund, Inc.
26. UnionBank
27. UCPB

Sources: Unit Investment Trust Fund Philippines and PIFA