In the portfolio activity in April this year, I kept the fresh fund for Singapore fixed income in FSM cash fund, instead of building the SGS bond ladder that I have planned. It was because the yield of 5-year SGS bond was low and I was really busy to go to bank to bid for it. But I have overlooked a quick and convenient way to build SGS bond ladder — the SGS bonds offered by fundsupermart (FSM). FSM charges 0.1% of nominal value as initial processing fee and 0.1% of nominal value deducted from coupon payment as annual custody fee.
How much do the fees reduce the yield? To do this comparison, I use the data in SGS web site as the yield before fee; and FSM Bond Factsheet to calculate the yield after fees. For the latter, I point my browser to FSM Bond Factsheet, then select a SGS bond, enter 1000 as the amount to buy, enter indicative price + $0.10 (to simulate the 0.1% processing fee on $1000 nominal value) as maximum price to buy, and finally hit the Submit button the get the net yield to maturity. My assumption is that the net yield from the calculation above includes the fees charged by FSM and the bid-ask spread.
The bonds that I have compared are as follow, with the yield to maturity from SGS web site and FSM calculator respectively. Data are extracted on 1 August 2008.
- NX01100H; Coupon 3.625%; Maturity 01/07/2011; Years to Maturity: 2.92 (years), 1.36%, 1.10%
- NX02100S; Coupon 3.500%; Maturity 01/07/2012; Years to Maturity: 3.91 (years), 1.84%, 1.63%
- NX04100F; Coupon 3.625%; Maturity 01/07/2014; Years to Maturity: 5.91 (years), 2.47%, 2.29%
The fees and spread reduce the yield of the above bonds by 0.18% ~ 0.26%. Compare this with a bond ladder built by bidding SGS bonds at zero cost, this method has the advantage of building a bond ladder faster and saving the trip to banks.
Thanks to this post in sgfunds.com for the information on FSM SGS bonds.