How to invest in Retail Treasury Bonds (RTB)

I was visiting various banks yesterday scouting for a good housing loan package when I chanced upon an announcement at the Development Bank of the Philippines (DBP) in Buendia, Makati about the government offering ofRetail Treasury Bonds. What are Retail Treasury Bonds? The Philippine Retail Treasury Bond (RTB) is a direct and unconditional obligation of the Philippine government generally considered a safe and liquid investment opportunity. The RTB, issued by the Bureau of Treasury (hence the name), is one way for the government to raise needed funds. It is safe because it is fully backed by the government and rarely does a government, including the Philippines, defaults on a debt security such as this. It is liquid because it can be traded in the secondary market prior to maturity. It is called Retail because at Php5,000 (US$112) minimum investment, even individuals can invest here. How to compute interest earnings in RTBs The coupon interest on the 3-year bond is 8.50% per annum and for the 5-year bond, 9.0%. Interest is paid every quarter so youll receive four interest payments every year. It is, however, subject to 20% withholding tax. Meaning, given the following investment, the actual return would be:

Net Interest to be Received: Php850.00 every quarter A Php50,000 investment in the 3-year bond yields a net quarterly interest of Php850.00. Since this is paid every quarter, the total interest receivable during the year is Php3,400 (Php850.00 x 4) which represents a net return of 6.80%. For the 5-year RTB:

Investment Amount: Php50,000 Invested in: 3-year RTB paying 8.50% coupon Gross Quarterly Interest: Php1,062.50 (Php50,000 x 8.50% x 1/4) 20% Withholding Tax: Php212.50

Net Interest to be Received: Php900.00 every quarter Investing Php50,000 in the 5-year bond earns a net quarterly interest of Php900.00. The total interest for 1 year is Php3,600 (Php900.00 x 4) which represents a net return of 7.20%. The returns are not that bad considering that this opportunity is virtually risk-free. Anyway, my friends and I are planning to pool our money together so we can invest in the RTBs. We decided to open just one account especially since some of them are working abroad and wont be able to make their own investment. For their own good (LOL), they elected me to become the fund manager who will monitor the quarterly interest payments and make the transfer of the earnings to their individual bank account. The requirements to make a placement in RTBs are:

Investment Amount: Php50,000 Invested in: 5-year RTB paying 9.00% coupon Gross Quarterly Interest: Php1,125.00 (Php50,000 x 9.00% x 1/4) 20% Withholding Tax: Php225.00

(4) the money (minimum Php5,000; increments of Php5,000). The bad thing, though, is that despite the original July 29 deadline, the government is thinking of cutting the offering period short supposedly because they have raised enough money already. Im still waiting for my friends payments from abroad which are being coursed via Western Union and wire transfer (two of them are even sending via Paypal so I still have to convert that to cash). Hopefully, Ill receive them soon so I can make the investment before Friday, July 25

(1) a DBP savings account (the bank account where the quarterly interest will be credited); (2) an Investors Undertaking Form (provided by DBP); (3) a Special Power of Attorney form (also provided by DBP); (3) a valid ID; and, of course

Overview of the different types of investments

Citibank provides below a short and simple explanation of various investment options available to investors. For a more detailed discussion of these investment products, read the Time deposits, stocks, bonds, mutual funds, real estate: Where to invest my money? article. DEBT INSTRUMENTS When the government or a corporation needs to raise cash, it may borrow from investors. A corporation can borrow privately from lending institutions using promissory notes. A corporation can also borrow publicly by issuing commercial papers which are registered with the SEC. On the other hand, the government can borrow from the public through instruments such as treasury bills, notes and bonds. Since debt instruments are normally longer-term investments, interest payments tend to be higher than term deposits. STOCKS A common stock is a unit of ownership in a corporation for which the holder can vote on corporate matters and receive dividends from the companys earnings. Therefore, when the investor purchases a stock, he becomes a part-owner of the whole company Although investing in stocks involves higher risks versus investing in debt or money market instruments, you can take advantage of the higher earning potential that can be gained from stocks through capital appreciation and dividends. Furthermore, stock investments have in general outperformed bond and money market instruments over time.

FUNDS An investment fund pools money from unrelated investors with similar investment objectives. The fund is managed by a portfolio manager who invests the money in a portfolio of securities and / or other instruments according to the specified investment objectives. A fund offers several distinct benefits to investors:

As a single investor, it may be difficult to achieve diversification. Funds enable you to purchase various types of securities and other instruments to build a diversified portfolio. The fund is managed by experienced professionals who have access to information on the economy and market movements. Through the fund, you can invest in a diversified portfolio, enjoying the same earnings potential from the securities that would have been accessible exclusively to institutional investors. Funds make it possible for investors to buy instruments at a lower cost. When the fund buys different instruments, the cost of buying these instruments is divided among all investors versus the sole investor bearing the total cost

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