How To Invest In Bond Funds In The Philippines – Peso Lab
Bond funds are great for conservative investors but why? How can you get started with them? What is the required initial amount? What companies are offering them? And what are the best performing bond funds in the Philippines to invest? These are the questions that I will cover in this article.
Bond funds
Bond funds, as their name suggest, are investment funds whose assets are in the form of bonds. They can be offered by a mutual fund companies, banks or trust entities that offer unit investment trust fund (UITF) or Personal Retirement and Savings Account (PERA), or insurance company that offers Variable Universal Life (VUL) policy.
What is a bond?
Bonds are debts, and it works exactly like borrowing money to someone. There is the capital (the amount owed, also called par value), the interest (the additional money paid on top of capital in exchange for the privilege of borrowing), and the length of time that the debt has to be settled (called maturity). An example is a retail treasury bond that is offered by the government through the Bureau of the Treasury.
Who offer bonds?
But who would offer bonds? Big institutions like governments and private corporations. The government, because it is a non-profit, cannot issue stocks so they issue bonds instead. They use the money that they raised to fund infrastructure projects, delivery of social services, etc.
Private corporations can create stocks to sell to investors, but this is something that they don’t do frequently because it dilutes or lessens the value of their stock. What they do instead is to offer bonds.
How do you earn from bonds?
Through bonds, institutions can get the money that they need while you earn interest. Usually, the interest is paid out regularly like every quarter, and this is why bonds are also called fixed income securities. The interest is set by the government or the institution that needed to borrow money. Other such details like maturity, frequency in which the interest is paid, and the minimum capital are likewise set at the outset.
You will hold the bond until maturity, which is the length of time (usually years) that you’d be receiving periodic interest. Once it matures, the institution will pay back your capital.
Top bond funds in the Philippines
Here is the list of the best bond funds in the Philippines for the year 2019. You can also check articles on best UITF and top mutual funds for the year, respectively, for the complete list of other funds. Again, past results do not guarantee future performance.
| TYPE | FUND NAME | ROI |
|---|---|---|
| UITF | UnionBank Long Term Fixed Income Portfolio | 22.12% |
| UITF | UnionBank Tax Exempt Portfolio | 19.82% |
| UITF | SB PESO BOND FUND | 19.29% |
| UITF | ABF Philippines Bond Index Fund | 18.67% |
| UITF | BPI Fixed Income Portfolio Fund-of-Funds | 17.61% |
| UITF | CHINA BANK FIXED INCOME FUND (formerly CBC GS FUND) | 17.13% |
| UITF | Odyssey Peso Bond Fund | 16.96% |
| UITF | EastWest Peso Long Term Bond Fund | 15.66% |
| UITF | Manulife Income Builder Fund (Class I) | 15.51% |
| UITF | UnionBank Philippine Peso Fixed Income Portfolio | 15.16% |
| UITF | Manulife Income Builder Fund (Class A) | 13.81% |
| UITF | RIZAL PESO BOND FUND | 13.08% |
| UITF | UnionBank High Net Worth Intermediate-Term Peso Fixed Income Portfolio | 12.90% |
| UITF | BDO MERIT FUND MEDIUM TERM PORTFOLIO | 12.90% |
| UITF | ATRAM Total Return Peso Bond Fund | 12.54% |
| UITF | Peso Investment Trust Fund | 11.86% |
| Mutual fund | Philam Bond Fund, Inc. | 11.54% |
| UITF | UCPB Peso Bond Fund (Formerly United Conservative Fund) | 11.46% |
| UITF | BDO PESO BOND FUND | 11.35% |
| UITF | BDO PERA BOND INDEX FUND | 11.35% |
| UITF | BDO GS FUND | 11.35% |
| UITF | BDO MERIT FUND INTERMEDIATE TERM PORTFOLIO | 11.35% |
| UITF | Odyssey Peso Medium Term Bond Fund | 11.35% |
| UITF | BPI Premium Bond Fund | 11.35% |
| UITF | CHINA BANK INTERMEDIATE FIXED-INCOME FUND | 11.35% |
| UITF | EastWest Peso Intermediate Term Bond Fund | 11.35% |
| UITF | LANDBANK Bond Fund | 11.35% |
| UITF | Manulife Stable Income Fund (Class I) | 11.35% |
| UITF | Manulife Stable Income Fund (Class A) | 11.35% |
| UITF | Manulife Asia Dynamic Bond Feeder Fund (PHP Unhedged Class A) | 11.35% |
| UITF | Maybank Tiger Peso Bond Feeder Fund | 11.35% |
| UITF | Metro Corporate Bond Fund | 11.35% |
| UITF | Metro Max-5 Bond Fund | 11.35% |
| UITF | Metro Aspire Bond Feeder Fund | 11.35% |
| UITF | Metro Max-3 Bond Fund | 11.35% |
| UITF | Metro Unit Paying Fund | 11.35% |
| UITF | Diamond Fund | 11.35% |
| UITF | PNB PESO INTERMEDIATE TERM BOND FUND | 11.35% |
| UITF | UnionBank Intermediate Term Fixed Income Portfolio | 11.35% |
| UITF | UnionBank Infinity Prime Portfolio | 11.35% |
| Mutual fund | Sun Life of Canada Prosperity Bond Fund, Inc. | 11.20% |
| Mutual fund | Sun Life Prosperity GS Fund, Inc. | 10.47% |
| Mutual fund | Soldivo Bond Fund, Inc. | 8.03% |
| Mutual fund | Philequity Peso Bond Fund, Inc. | 7.71% |
| Mutual fund | First Metro Save and Learn Fixed Income Fund,Inc. | 6.79% |
| Mutual fund | Cocolife Fixed Income Fund, Inc. | 4.83% |
| Mutual fund | Ekklesia Mutual Fund Inc. | 4.44% |
| Mutual fund | ALFM Peso Bond Fund, Inc. | 4.20% |
| Mutual fund | Grepalife Fixed Income Fund Corp. | 2.72% |
| Mutual fund | ATRAM Corporate Bond Fund, Inc. | 2.30% |
Philippine companies that offer bond funds
The following offer bond funds to the investing public:
And here’s the list of Philippine mutual fund, UITF and PERA companies that offer bond fuds.
| FUND NAME | TYPE | COMPANY |
|---|---|---|
| ABF Philippines Bond Index Fund | UITF | BPI Asset Management and Trust Corporation |
| ALFM Peso Bond Fund, Inc. | Mutual fund | BPI Asset Management |
| ATRAM Corporate Bond Fund, Inc. | Mutual fund | ATRAM |
| ATRAM Global Bond Income Feeder Fund | UITF | ATRAM Trust Corporation |
| ATRAM Total Return Peso Bond Fund | UITF | ATRAM Trust Corporation |
| BDO GS FUND | UITF | BDO Unibank, Inc. |
| BDO MERIT FUND INTERMEDIATE TERM PORTFOLIO | UITF | BDO Unibank, Inc. |
| BDO MERIT FUND MEDIUM TERM PORTFOLIO | UITF | BDO Unibank, Inc. |
| BDO PERA Bond Index Fund | PERA | BDO |
| BDO PERA BOND INDEX FUND | UITF | BDO Unibank, Inc. |
| BDO PESO BOND FUND | UITF | BDO Unibank, Inc. |
| BPI Fixed Income Portfolio Fund-of-Funds | UITF | BPI Asset Management and Trust Corporation |
| BPI PERA Government Bond Fund | PERA | BPI |
| BPI Premium Bond Fund | UITF | BPI Asset Management and Trust Corporation |
| CHINA BANK FIXED INCOME FUND (formerly CBC GS FUND) | UITF | China Banking Corporation |
| CHINA BANK INTERMEDIATE FIXED-INCOME FUND | UITF | China Banking Corporation |
| Cocolife Fixed Income Fund, Inc. | Mutual fund | Coco Life |
| Diamond Fund | UITF | Philippine Business Bank |
| DIVERSITY PESO BOND FUND | UITF | Bank of Commerce |
| EastWest Peso Intermediate Term Bond Fund | UITF | EastWest Banking Corporation |
| EastWest Peso Long Term Bond Fund | UITF | EastWest Banking Corporation |
| Ekklesia Mutual Fund Inc. | Mutual fund | BPI Asset Management |
| First Metro Save and Learn Fixed Income Fund,Inc. | Mutual fund | FAMI |
| Grepalife Fixed Income Fund Corp. | Mutual fund | Grepalife |
| LANDBANK Bond Fund | UITF | LandBank of the Philippines |
| Landbank PERA Bond Fund | PERA | Landbank |
| Manulife Asia Dynamic Bond Feeder Fund (PHP Unhedged Class A) | UITF | Manulife Asset Management and Trust Corporation (MAMTC) |
| Manulife Income Builder Fund (Class A) | UITF | Manulife Asset Management and Trust Corporation (MAMTC) |
| Manulife Income Builder Fund (Class I) | UITF | Manulife Asset Management and Trust Corporation (MAMTC) |
| Manulife Stable Income Fund (Class A) | UITF | Manulife Asset Management and Trust Corporation (MAMTC) |
| Manulife Stable Income Fund (Class I) | UITF | Manulife Asset Management and Trust Corporation (MAMTC) |
| Maybank Tiger Peso Bond Feeder Fund | UITF | Maybank Philippines Inc. |
| Metro Aspire Bond Feeder Fund | UITF | Metropolitan Bank & Trust Co. |
| Metro Corporate Bond Fund | UITF | Metropolitan Bank & Trust Co. |
| Metro Max-3 Bond Fund | UITF | Metropolitan Bank & Trust Co. |
| Metro Max-5 Bond Fund | UITF | Metropolitan Bank & Trust Co. |
| Metro Unit Paying Fund | UITF | Metropolitan Bank & Trust Co. |
| Odyssey Peso Bond Fund | UITF | BPI Asset Management and Trust Corporation |
| Odyssey Peso Medium Term Bond Fund | UITF | BPI Asset Management and Trust Corporation |
| Odyssey Tax-Exempt Peso Fixed Income Fund | UITF | BPI Asset Management and Trust Corporation |
| Peso Investment Trust Fund | UITF | Asia United Bank |
| Philam Bond Fund, Inc. | Mutual fund | PAMI |
| Philequity Peso Bond Fund, Inc. | Mutual fund | Philequity |
| PNB PESO INTERMEDIATE TERM BOND FUND (formerly AUP GS FUND) | UITF | Philippine National Bank |
| RIZAL PESO BOND FUND | UITF | Rizal Commercial Banking Corporation |
| SB PESO BOND FUND | UITF | Security Bank Corporation |
| Soldivo Bond Fund, Inc. | Mutual fund | Soldivo |
| Sun Life of Canada Prosperity Bond Fund, Inc. | Mutual fund | Sun Life |
| Sun Life Prosperity GS Fund, Inc. | Mutual fund | Sun Life |
| UCPB Peso Bond Fund (Formerly United Conservative Fund) | UITF | United Coconut Planters Bank |
| UnionBank High Net Worth Intermediate-Term Peso Fixed Income Fund | UITF | Union Bank |
| UnionBank High Net Worth Medium-Term Peso Fixed Income Fund | UITF | Union Bank |
| UnionBank Infinity Prime Fund | UITF | Union Bank |
| UnionBank Long Term Fixed Income Portfolio | UITF | Union Bank |
| UnionBank Medium Term Fixed Income Portfolio | UITF | Union Bank |
| UnionBank Philippine Peso Fixed Income Portfolio | UITF | Union Bank |
| UnionBank Tax Exempt Portfolio | UITF | Union Bank |
Advantages of investing in bond funds
With bond funds, your investment as well as those from other investors will be used to acquire these debt instruments.
But why invest in bond funds? What are the benefits of going into managed funds rather than buying bonds directly?
Less risky
All investments have risks, but risks are not created equally. With bond funds, the level of risks is determined by the nature of the bonds being acquired. Generally, government bonds are considered relatively less risky securities because the Philippine government has paid out its debt obligations.
Also, the interest and the capital that was borrowed remain the same. The same cannot be said about buying stocks whose price can increase or decrease in real-time.
Fixed income
The income that you can receive in the form of interest is stable. It does not change. In effect, the gains of funds that invest in them can be steady and predictable.
Low starting capital
Perhaps the biggest advantage of bond funds is that you don’t have to put a big capital to get started. Unlike when you buy bonds by yourself where the minimum can start between P50,000 and P100,000 or even more, these funds allow you to begin investing with a very low starting amount.
Disadvantages of bond funds
Risks
There are several risks although they occur relatively infrequently. For instance, the interest may not be paid out or that the interest payment schedule is not followed. The maturity or term may be extended, and there is also the risk of default.
Fees
Just like any other investment funds, bond funds have costs in terms of operations and hiring a manager to oversee the bonds being acquired. These costs are passed on to investors like you in the form of sales load and management fee.
Some funds would also require that you stay for a minimum length of time called lock-in period. When you redeem your investments, you would be charged exit fee.
Returns
Another drawback is that the returns that you get from these types of funds are historically less than the potential earnings from moderately aggressive and riskier securities index funds over long term. However past performance does not guarantee future returns.
Tax
Any interest earned is liable for a 20% tax. You would not notice this though as taxes are computed into the net asset value per share or net asset value per unit.
Features of bond funds
A bond fund is just like any other managed funds. For more in-depth discussions, you may read mutual funds, UITF, and PERA. There, you’d see the specific details. It has the following common features:
- Initial capital.
- Additional investment
- Management fee
- Holding period
- Exit fee
- Sales load
Initial capital
The initial capital is the starting amount so you can begin your fund. Some companies would allow you to open for as low as P50 and others would require at least P500,000 to start.
Additional investment
The additional investment is the required minimum when you want to add to your account. The range is between P50 and P100,000.
Management fee
The management fee is a portion of the fund that goes towards paying for its operation, management, and other cost. It is commonly a percentage of the entire value of the fund.
You don’t have to pay this out-of-pocket. It is computed into the net asset value per share or net asset value per unit.
Holding period
Holding or lock-in period is the length of time that you need to keep investments. If you withdraw before the period is up, you would be liable to pay for any exit fee.
Exit fee
Exit fee is the charge when you redeem your investments before the lock-in period is up.
Sales load
Sales load, also called front-end/back-end fee, is a charge every time you invest. It is a percentage of the capital that you put up whether it’s your first or your additional investment.
The sales load customarily goes to registered or licensed agent who helped you set up the account. Almost all mutual funds charge sales load, while only a few UITF have a sales load.
Bond fund fees
Here is the summary of bond fund fees.
| NAMETHE | TYPE | INITIAL | ADD | MANAGEMENT FEE | HOLD | EXIT | SALES LOAD |
|---|---|---|---|---|---|---|---|
| ABF Philippines Bond Index Fund | UITF | 10,000 | 1,000 | 0.080% Trust Fee / 0.186% Management and Advisory Fee | 0 calendar | None | |
| ALFM Peso Bond Fund, Inc. | Mutual fund | 5,000 | 1,000 | 1.25% | 90 days | 1% | 1% |
| ATRAM Corporate Bond Fund, Inc. | Mutual fund | 50 | 50 | 2.24% | 6 months | 1.20% | 5% |
| ATRAM Global Dividend Feeder Fund | UITF | 1,000 | 1,000 | 1% | 0 calendar | none | |
| ATRAM Total Return Peso Bond Fund | UITF | 50 | 50 | 1% | 30 calendar | 1% | |
| BDO Gs Fund | UITF | 100,000 | 100,000 | 1% | 30 calendar | 1% | |
| BDO Merit Fund Intermediate Term Portfolio | UITF | 1,000 | 1,000 | 1% | 0 calendar | None | |
| BDO Merit Fund Medium Term Portfolio | UITF | 1,000 | 1,000 | 1% | 0 calendar | None | |
| BDO Peso Bond Fund | UITF | 10,000 | 10,000 | 1% | 30 calendar | 1% | |
| BPI Fixed Income Portfolio Fund-of-Funds | UITF | 1,000,000 | 10,000 | None | 0 calendar | None | |
| BPI Premium Bond Fund | UITF | 10,000 | 1,000 | 2% | 0 calendar | None | |
| CHINA BANK FIXED INCOME FUND (formerly CBC GS FUND) | UITF | 5,000 | 1,000 | 0.75% | 30 calendar | 1.00% | |
| CHINA BANK INTERMEDIATE FIXED-INCOME FUND | UITF | 5,000 | 1,000 | 0.50% | 30 calendar | 1.00% | |
| Cocolife Fixed Income Fund, Inc. | Mutual fund | 1,000 | 500 | 2% | 1 year | ? | 3.50% |
| Diamond Fund | UITF | 40,000 | 10,000 | 0.50% | 30 calendar | 75% of earnings (15 days), 50% of earnings (16-29 days) | |
| EastWest Peso Intermediate Term Bond Fund | UITF | 10,000 | 1,000 | 1% of the market value of the fund | 30 calendar | PHP 500.00 or 0.25% of the withdrawn amount, whichever is higher | |
| EastWest Peso Long Term Bond Fund | UITF | 50,000 | 1,000 | 1.0% of the market value of the fund | 180 calendar | PHP 500.00 or 0.25% of the withdrawn amount, whichever is higher | |
| Ekklesia Mutual Fund Inc. | Mutual fund | 5,000 | 1,000 | 2% | 6 months | 0.88% | 1% |
| First Metro Save and Learn Fixed Income Fund, Inc. | Mutual fund | 5,000 | 1,000 | 2% | 6 months | 1.75% | 1% |
| Grepalife Fixed Income Fund Corp. | Mutual fund | 5,000 | $1,000 | 2% | 1 year | ? | 2% |
| LANDBANK Bond Fund | UITF | 5,000 | 1,000 | 1.00% | 30 calendar | 25% of net earnings (P500 minimum) | |
| Manulife Income Builder Fund (Class A) | UITF | 5,000 | 5,000 | 1.50% | 365 calendar | 1.00% of the amount redeemed | |
| Manulife Income Builder Fund (Class I) | UITF | 5,000 | 5,000 | N/A | 365 calendar | N/A | |
| Manulife Stable Income Fund (Class A) | UITF | 5,000 | 5,000 | 1.25% | 365 calendar | 1.00% of the amount redeemed | |
| Manulife Stable Income Fund (Class I) | UITF | 5,000 | 5,000 | N/A | 365 calendar | N/A | |
| Metro Aspire Bond Feeder Fund | UITF | 5,000 | 1,000 | None | 0 calendar | None | |
| Metro Corporate Bond Fund | UITF | 50,000 | 25,000 | 0.75% | 30 calendar | 50% of income on redeemed amount | |
| Metro Max-3 Bond Fund | UITF | 50,000 | 25,000 | 1.00% | 30 calendar | 50% of income on redeemed amount | |
| Metro Max-5 Bond Fund | UITF | 50,000 | 25,000 | 1.50% | 30 calendar | 50% of income on redeemed amount | |
| Metro Unit Paying Fund | UITF | 500,000 | 100,000 | 0.50% | 30 calendar | 1.00% of redeemed amount | |
| Odyssey Peso Bond Fund | UITF | 10,000 | 5,000 | 1% | 0 calendar | None | |
| Odyssey Peso Medium Term Bond Fund | UITF | 10,000 | 5,000 | 1% | 0 calendar | None | |
| Odyssey Tax-Exempt Peso Fixed Income Fund | UITF | 100,000 | 50,000 | 1% | 0 calendar | None | |
| Peso Investment Trust Fund | UITF | 10,000 | 1,000 | 1% | 30 calendar | 1% | |
| Philam Bond Fund, Inc. | Mutual fund | 1,000 | 500 | 3% | 6 months | 1.50% | 1% |
| Philequity Peso Bond Fund, Inc. | Mutual fund | 10,000 | 5,000 | 1% | 2 years | 1.50% | 1% |
| PNB PESO INTERMEDIATE TERM BOND FUND (formerly AUP GS FUND) | UITF | 10,000 | 10,000 | 0.75% | 30 calendar | .50% of income earned, if any | |
| RIZAL PESO BOND FUND | UITF | 50,000 | 10,000 | 0.50% based on NAV | 30 calendar | 0.125% of redemption proceeds | |
| SB PESO BOND FUND | UITF | 10,000 | 5,000 | 1.00% | 0 calendar | N/A | |
| Soldivo Bond Fund, Inc. | Mutual fund | 5,000 | 1,000 | 3.36% | 6 months | 1.50% | 1.12% |
| Sun Life of Canada Prosperity Bond Fund, Inc. | Mutual fund | 1,000 | 1,000 | 2% | None | 1% | None |
| Sun Life Prosperity GS Fund, Inc. | Mutual fund | 1,000 | 1,000 | 2% | None | 1% | None |
| UCPB Peso Bond Fund | UITF | 1,000 | 1,000 | 1.00% | 30 calendar | 5% | |
| UCPB Peso Bond Fund | UITF | 1,000 | 1,000 | 1.00% | 30 calendar | 5% | |
| UnionBank High Net Worth Intermediate-Term Peso Fixed Income Fund | UITF | 10,000,000 | 0 | 0.13% | 0 calendar | 0 | |
| UnionBank High Net Worth Medium-Term Peso Fixed Income Fund | UITF | 10,000,000 | 0 | 0.13% | 0 calendar | 0 | |
| UnionBank Infinity Prime Fund | UITF | 100,000 | 0 | 2% per annum; 0.51% for the quarter | 90 calendar | 5% flat on redeemed amount | |
| UnionBank Long Term Fixed Income Portfolio | UITF | 100,000 | 0 | 1% per annum; 0.33% for the quarter | 90 calendar | 2% or Php 500 whichever is higher | |
| UnionBank Medium Term Fixed Income Portfolio | UITF | 100,000 | 0 | 0.75% per annum; 0.25% for the quarter | 90 calendar | 0.25% or Php 500 whichever is higher | |
| UnionBank Philippine Peso Fixed Income Portfolio | UITF | 100,000 | 0 | 1% per annum; 0.33% for the quarter | 90 calendar | 0.25% or Php 500 whichever is higher | |
| UnionBank Tax Exempt Portfolio | UITF | 100,000 | 0 | 0.25% per annum; 0.064% for the quarter | 90 calendar | None |
Is bond fund right for you?
The bond fund is appropriate for conservative investors who have low tolerance to risks. It is a good fit for people who want to avoid capital loss, preserve the value of their investment, and expect modest, predictable gains.
It is also something that can be opened when you have short-term to medium-term financial goals. Because bonds don’t experience the same volatility as stocks, then you can actually expect to see that your original capital is not affected by any market slowdown.
How to get started with bond funds
Just like opening any other managed fund, you have to define what your financial goal first. Is this for intermediate, long, or medium-term need? From there, you can decide how much rate of return you’d like to expect, your risk profile, required capital, strategy (whether peso cost averaging or lump sump), etc.
Then, narrow down your options from the list of bond funds that you see from this article. You may also include the factors including the company, history, reputation, convenience, online access, customer service, etc.
You may also reach out to the company reps to ask for more details. This article only gives you an overview on how these funds work, but there may be some information that are specific to the fund and to the company.
Next, check the required documents, minimum required initial amount, and other stuff. Bring all of these so that you won’t have any encounter any hitches when start your account.
After you’ve opened the account, continue to track the gains of your fund.
