By Oriana Cuenca
There is a buzz in the Filipino financial world about the latest government-issued investment opportunity. “Premyo Bonds” were launched last November 25 by the National Treasury. The “Premyo” in its name refers to the raffle scheme that comes with the investment. Every bond bough doubles as a raffle ticket and the prizes notoriously include a unit at Double Dragon’s Hotel 101 Taguig–and one million pesos.
Premyo bonds are sold for as low as 500 pesos to encourage everyone to try investing. The raffle scheme was even added to sweeten the pot, but not all small investors understand what the bonds are to begin with. A raffle is straightforward enough, but why would anyone want to buy a Php500 raffle ticket? This guide will explain what bonds are, how they work, and how you can make money and win prizes with this safe new investment option.
What are Bonds?
Bonds are a type of investment where you lend money to an institution (usually the government or a company), and earn interest when the institutions pay you back. Bonds can be called a more sophisticated I.O.U note. The bond contains all the information on how much the lender borrowed from you, when the lender is expected to pay, and how much interest you’re expected to make after lending the money.
This is where some terminologies come in. Thinking back to the I.O.U note example, the most important part of an I.O.U note is how much the person needs to pay you and when. The amount the person needs to pay you back when the time comes is called the Face Value or Par Value of the bond. The day when the bond can be collected is called the Maturity Date.
The face value is not the only amount that you’ll receive. You’ll also get interest for lending the money. This interest is called a coupon rate. Most bonds would usually list this as the interest rate per annum. Not all bonds give out interest at the end of the year or at the end of the maturity date. Bonds usually give out interest payments semiannually or even quarterly.
Here’s an example. Coupon rates are computed with their face value or coupon rate. Say the face value is Php 1000 with a coupon rate of 5% with semiannual payments. Since 5% is the annual interest rate, and the payments are semiannual, divide the 5% interest rate by 2 and you get 0.025. Multiply this by the 1000 face value and you get 25. Sadly, that doesn’t mean you’ll get the full Php25 in interest. There’s a 20% tax called withholding tax on income from investments which means you’ll only get 80% of the interest you earned. 25 multiplied by 80% is 20, and Php20 would be your income for that period. Six more months later, you’ll get another Php20. This will go on until the maturity date.
How they work
There are three common bonds in the Philippines: Corporate Bonds, Government Bonds, and Zero-coupon bonds. The first two are named after its issuers, but the third is a special case. Zero-coupon bonds do not have any interest, but you buy them for less than face value. Say the bond has a face value of 4000. While the face value is 4000, you actually only pay 3500 for a bond that will pay out 4000 in the future. The 500 difference would be your income.
Bonds can usually be bought and sold. If you sell a government bond to someone else, then the government now owes them money since they are the ones holding the bond. You will not collect the face value at the end of the maturity date, but you’ll have the income from selling the bond.
Premyo bonds are not like the typical bonds and cannot be sold.
How you can make money from the Premyo Bond
Now after all that, how can you make money from the premyo bonds? The premyo bonds cost Php500 per bond and have an interest rate of 3% per annum paid quarterly with a term of one year. If you bought 10 premyo bonds which cost Php5000, you’ll get back Php 5120 after the one year term. Not sure how we got to this number? Scroll back up to the “What are Bonds?” part to see a breakdown.
If you’re confused, the government created this website to help compute possible gains.
Since the bond is issued by Philippine government itself, rest assured you will get your money back, but a neat 3% interest is not the only thing you stand to earn. Let’s not forget that these are premyo bonds, and that there’s an ongoing raffle for every bond holder. There will be a quarterly draw with the following winners:
50 winners of Php 20,000
10 winners of Php 100,000
1 winner of Php 1,000,000
Not all the Php 1,000,000 winners will get their prizes in cash. The first three winners will receive non-cash prizes such as a condominium unit or a house and lot tax-free.
Premyo bonds can be bought online or through these banks: Land Bank of the Philippines, China Bank Capital Corporation, First Metro Investment Corporation, BDO Capital & Investment Corporation, and Development Bank of the Philippines.
Filipinos have always pinned their hopes on luck-based money making schemes like raffles of the lottery. “Pag nanalo ako sa lotto…” is a common way to start a sentence about financial dreams. The premyo bond is way to encourage Filipinos to stop wishing on lottery numbers and instead take control of their financial future. The premyo bond could be a solid first step, and what better way to start than with an investment that doesn’t give up the love for luck entirely.
Will you try these out? Let us know![fb_instant_article_ad_01]?