So, you want to dive into the stock market and grow your money through investing. But where do you start?
In the Philippines, there are 4 types of basic currency investments. Each has their pros and cons. Choose one depending on your risk tolerance and expected returns.
Time Deposits (TD). You can create a time deposit in any major Philippine bank. Depending on the size of the bank and its reputation, the return on interest is higher than an ordinary savings account and would be tiered depending on the amount invested and the term of the deposit (typical average of 30 days). Note that extending the term of your deposit does not necessarily mean you will receive a higher rate of interest than one shorter in term.
Your TD is subject to a 20% withholding tax. There is little risk associated with TDs; in the rare case that your bank goes bankrupt, you may lose any part of your principal over PHP500,000.
Long Term Negotiable Certificates of Deposit (LTNCD). The LTNCD is a form of long-term deposit usually maturing after 5-7 years. LTNCDs pay a much higher rate of interest than a TD (anywhere from 3-5 times that of a short-term TD). As long as you hold your LTNCD for 5 years or more, your investment will be tax-exempt.
Your risk is the same as time deposit. However, given the longer term to maturity, be sure to invest only in banks that have a proven track record of consistent earnings, have very reputable owners, a solid history of repaying their bond issuances, and are not entangled in any issues with the Bangko Sentral ng Pilipinas.
Government Securities (GS). These are debt instruments issued by the Philippine Government through the Bureau of the Treasury. They are considered low risk investments because the government can always print money to repay the registered holders. There are 2 types of GS:
• Treasury Bills that mature in less than a year. The yields for Treasury Bills are typically higher than TDs to attract investors to go beyond the typical 30-day average.
• Treasury Bonds that mature after a year. The annual yield on interest is represented by the coupons, which is expressed as a percentage of the face value and is payable semi-annually.
Corporate Bonds. Corporate bonds are financial instruments issued by corporations. The company that issues a bond is going direct to the market expecting their reputable name to attract investors.
Unlike banks which can easily raise deposits to pay their liabilities, corporate issuers have to rely solely on their business’ earnings and cash flow. This is the reason why the rates of interest on a bond are slightly higher (typically 0.5 – 1.5%) over the comparative term of GS and LTNCDs.
Aside from these different investment opportunities, aspiring investors can also use GCash’s Invest Money as a starting point! For as low as P50, you can already invest in your choice of money market instrument and make your money work for you.
Just download the GCash App to start!