How do I invest in SA government bonds?
There are three ways in for an ordinary investor: RSA retail bonds, a unit trust or an income unit trust
Q: Could you let me know which service provider I can contact to purchase SA government bonds?— Soobrie Govender via e-mail.
A: Ricardo Teixeira, Certified Financial Planner® professional of BDO Wealth Advisers, answers:
As with most investment assets, there are several ways that you can access an investment. The option that is best suited to you would depend on the value of your investment, the objective and purpose of making the investment, and your needs. Investing in SA government bonds is exactly the same and would require consideration of these factors.
SA government bonds are issued by the Treasury. A minimum investment of R10m is required to invest directly into a SA government bonds. This is typically reserved for institutional investors such as fund managers, pension funds and corporate investors.
As a private investor, you could consider three alternative investment options that would be more accessible and which are linked to the SA government bond yield in one way or another:
RSA retail bonds
This is the most direct way for the public to invest in SA government bonds. The minimum investment amount is R1,000. RSA retail bonds offer yields which are lower than those on SA government bonds, and are available with two-, three- or five-year fixed terms. Interest is payable on set payment dates until maturity of the bond when your capital is returned. Because they have fixed investment terms, they are not liquid and cannot be withdrawn before the end of the term without incurring a penalty for early disinvestment.
You can make a direct investment into an RSA retail bond online at https://secure.rsaretailbonds.gov.za
Bond unit trust
This is a collective investment structure that holds a wide range of bonds, which could include SA government bonds and corporate bonds. As a result, this investment gives the investor an average yield comprising the underlying interest coupons on each bond. The investment return on a bond unit trust is made up of the value of the bond and the cumulative interest payments received by the unit trust on each bond.
These investments are liquid and can be withdrawn from one day to the next. They would target a return of about inflation plus 1%-3% a year. Bond unit trusts are very similar to RSA retail bonds, but with a lower risk profile because they are invested in a series of bonds and not just SA government bonds.
Income unit trust
This is also a unit trust investment but is invested in both bonds and cash. It has the same characteristics as the bond unit trust but will target a lower investment return of inflation plus 1% per year. Unit trust investments can be made directly with a registered unit trust management company.
In all three instances, the effect of taxation (on both income and capital) would need to be taken into consideration in making your investment decision.
Despite bond yields looking attractive at present in comparison with the volatility of equity investments, it is always advisable to have a diversified investment portfolio and not to be overweight in any one investment asset.
Happy investing and saving!