The damage done by the Covid-19 pandemic to the economy continues to unfold.
Lives have been lost. Many have gotten sick. Many have suffered. Many have been displaced. The good growth momentum of the Philippines over the past years has been put to a halt as a result of the pandemic.
It is during these trying times that government is supposed to be at the forefront of supporting businesses and citizens. However, in economics, there is really no such thing as a free lunch. We live in a world of trade-offs.
Every support program will entail cost and will require funding. One option the government can explore will be to raise taxes like the income tax or the VAT (value-added tax). The government can likewise introduce new taxes. The Bangko Sentral ng Pilipinas also has the option of printing more money to fund programs.
Government assets and companies can be sold for additional funds. The government can borrow money domestically and internationally. One alternative the government can explore is issuing Retail Treasury Bonds. Treasury Bonds are government securities that are issued through the Bureau of Treasury. These are mainly issued to help finance various government programs. The usual Treasury bonds may not be for everybody since the required minimum investment may be too prohibitive.
However, Retail Treasury Bonds are distinct since they aim to democratize access to bonds as investment alternatives by making the required minimum investment amount affordable. Typically, the amount will be around P5,000.
There are two ways for the public to invest in Retail Treasury Bonds. Filipinos who decide to invest have the option of going to the different accredited banks and financial institutions, and, filling up the necessary forms with pertinent information. Online transactions through the Bureau of Treasury are also possible.
Retail Treasury Bonds have many benefits for investors. The relatively low minimum investment required can potentially allow many Filipinos to participate. Retail Treasury Bonds offer convenience in investing since there are physical and online avenues where investors can transact.
Since Retail Treasury Bonds are issued by the government, this would mean that the level of risk of investing in these securities will be low since the government has various available ways and means to fulfill its bond-related obligations.
The return of a Retail Treasury Bond is fixed and is usually obtained on a quarterly basis. This provides cash flow stability for investors which other investment alternatives like the stock market investments may not be able to provide.
The return of Retail Treasury Bonds would usually be higher than the interest income from both regular savings accounts and time deposit accounts. For conservative or risk-averse investors, it may prove to be a better alternative. Retail Treasury Bonds are negotiable and transferable.
However, even with the various benefits, nothing is perfect and certain things have to be considered. Since the risk of the Retail Treasury Bond is lower, the return offered may be lower as compared to what can be possibly generated by stock market investments and real estate investments.
In investing, one has to also ensure that other important aspects like the emergency fund and ample insurance are addressed so investing in Retail Treasury Bonds should be done in the context of comprehensive financial planning.
Twenty-twenty marks the advent of the New Normal. In this light, new ways of managing money and helping the economy are relevant. Given its benefits and things for consideration, the affordable Retail Treasury Bond can be a good instrument for the general public to diversify the investment portfolio.
At the same time, the Retail Treasury Bond can potentially allow Filipinos to have an active part in helping the economy recover. It is therefore imperative for the government to use the funds prudently and transparently.
Gemmy Lontoc is a registered financial planner of RFP Philippines. To learn more about personal financial planning, attend the 84th RFP program this August 2020. To inquire, e-mail info@rfp.ph or text <name><e-mail> <RFP> at 0917-9689774.