SESSION 4-Money Market & Fixed Income Instruments.pdf

Money Market & Fixed Income Instruments R OB ER T O M AR C O N. SA M SON M BA , E SS, CI S, FI MS , C T P , C U SP , C FM P Session Objectives Fixed Income Instruments and its Types Pros & Cons of Fixed Income Instruments Timing & Incorporating Fixed Income Instruments in Portfol...

Money Market & Fixed Income Instruments R OB ER T O M AR C O N. SA M SON M BA , E SS, CI S, FI MS , C T P , C U SP , C FM P Session Objectives Fixed Income Instruments and its Types Pros & Cons of Fixed Income Instruments Timing & Incorporating Fixed Income Instruments in Portfolio About Myself MIN Relationship Manager, Unionbank, Private Banking Dept. S.E.C. - Licensed Equities Securities Salesman (ESS) S.E.C. - Licensed Certified Investment Solicitor (CIS) S.E.C. – Licensed Fixed Income Market Salesman (FIMS) TIFP – Certified Trust Professional (CTP) T.O.A.P. – Certified UITF Sales Personnel (CUSP) Bloomberg - Certified Financial Markets Professional (CFMP) Regular contributor to ANC 24/7 News Channel & Bloomberg PH TV Part-Time Professor at the Ateneo de Davao University, Graduate School Accredited Program Instructor at the ADDU Academy of Lifelong Learning Master’s in Business & Administration graduate, Ateneo de Davao University BS – Industrial Engineering graduate, Ateneo de Davao University Managerial & Organizational Leadership specialist, Golden West College (California, USA) What is a Fixed Income Instrument? A fixed-income security is an investment that provides a return through fixed periodic interest payments and the eventual return of principal at maturity. Unlike variable-income securities, where payments change based on an underlying measure, such as short-term interest rates, the returns of a fixed-income security are known.  What’s the Point? To provide stable fixed income: Predictable stream of cash flows make budgeting easier Flexible tenors allow investors to select the most appropriate length and are fit for almost any purpose These products are backed by stable institutions like banks, governments, etc. Can be utilized by both individuals and institutions Types of Money Market & Fixed Income Instruments The most common kinds are: Time Deposits Treasury Bills Government Bonds Corporate Bonds Preferred Shares  Time Deposits A time deposit is an interest-bearing bank account that has a pre-set date of maturity. The money must remain in the account for the fixed term to earn the stated interest rate. Time deposits generally pay a slightly higher rate of interest than a regular savings account. The longer the time to maturity, the higher the interest payment will be.  Treasury Bills A Treasury bill (T-bill) is a short- term PH government debt obligation backed by the Bureau of the Treasury. Terms range from four to 52 weeks. T-bills are issued at a discount from the par value, also known as the face value. Government Bonds A government bond is a debt security issued by a government to support spending and obligations. Government bonds pay bondholders periodic interest payments called coupon payments. Government bonds issued and backed by national governments are often considered low-risk investments.  Corporate Bonds A corporate bond is debt issued by a company to raise capital. An investor who buys a corporate bond is effectively lending money to the company in return for a series of interest payments, but these bonds may also actively trade on the secondary market. Corporate bonds are typically seen as somewhat riskier than government bonds, so they usually have higher interest rates to compensate for this additional risk.  Preferred Shares A different type of equity that represents ownership of a company and the right to claim income from the company’s operations. Preferred stockholders have a higher claim on distributions (e.g., dividends) than common stockholders. In the event of a liquidation, preferred stockholders’ claim on assets is greater than common stockholders but less than bondholders  How to Buy Them? TIME DEPOSITS: via banks or digital banking apps TREASURY BILLS: via the Treasury Dept. of Banks BONDS: via Investment Dept. of Banks & other Financial Institutions PREFERRED SHARES: via stock brokerage firms  When to Buy Them? Buy long-term FI assets when interest rates are high Buy short-term FI assets when interest rates are low Interest rates typically follow inflation rates; High Inflation = High Interest and vice versa Always compare interest rates with prospective stock market performance  Quick Guide on Fixed Income Instruments FI assets are used to offer stability in an investment portfolio, given their steady cashflows FI assets are quite simple to understand and work well for novice investors Investors with large amounts of money may be satisfied with the returns of FI assets Always select the tenor you are most comfortable with The longer the tenor, typically the higher the interest rate Parting Thought For Session 5 Common Stocks & REITs