Financial Instruments for OFWs

A behavioral study conducted by the BSP to overseas Filipino workers reveals that OFWs are becoming more and more interested toward investments and solid opportunites that can further the hard-earned money abroad.

In order to secure the future consumption, OFWs are always ready to invest their hard-earned money in financial intruments.

These financial instruments are as follows:

Unit Investment Trust Funds (UITFs) are prudently Managed and invested only in diversified and highly marketable assets carefully scrutinized for their good investment quality and earnings potential.

Analysts claimed that for an affordable amount, you can enjoy yield benefits normally associated with multi-million investments.
UITFs provide investors the opportunity for higher returns compared to traditional savings and time deposits.

Investors participate by buying units of the Fund based on the Net Asset Value per Unit valued at market price daily. The use of mark-to-market valuation ensures that the Net Asset Value of the Fund reflects the market value of the investments; and the Return on Investment (ROI) may go up or down depending on market conditions.

The full measure of ROI can be felt over the medium to long term – at the very least, 180 days to one year.

Should there be a need for some cash, you may withdraw your investment free of pre-termination charges anytime after the minimum holding period. Or have the flexibility to invest and re-invest as you see fit.

Bonds refer to debt issues with maturities of more than a year. It is used to finance long-term projects.

Corporate Bonds – These are issued by various companies to finance their operations, expansion activities etc.

Mortgage bonds – a secured bond that is secured by liens on the physical assets of the corporation

Equipment trust certificates- a secured bond that is secured by “rolling stock" and are used primarily to finance equipment purchases in the transportation industry.
Collateral trust bonds –a secured bond that is secured by securities of other companies owned by the corporation.

Commercial Paper unsecured debt instruments maturing in a year or less. It is used for short-term cash requirements called working capital.

Government Securities are securities issued to the public. They are considered risk-free investments because they are guaranteed by the government and are therefore free of the risk of defaulting on interest and principal payments. The Government Treasury and its agencies issue these bonds.

T-bills (discount instruments) are the shortest term debt instruments issued by the government. Terms of 13, 26, 52 weeks, which are commonly known as 91-day, 182 day and 364 day T-bills, respectively. They are sold at a discount from their par values. They can never be traded at a premium.

T-notes -(2-10 years)

T-Bonds (more than 10 years) Treasury bonds are considered the highest quality of all bonds because the credit of the government backs them and so the payment upon maturity is more or less guaranteed. In exchange for this very high margin of credit safety, they have the lowest yields.

Agency bonds-Indirect obligations by the government.

Municipal bonds –LGU’s. These bonds are issued by governments and municipalities. Considered as reasonably safe, these bonds provide varying returns depending upon their maturities.

Money Market Instruments debt securities maturing one year or less.

Bank Savings are considered the safest of all options. For an ordinary person, these have acted as the safest investment avenue wherein a person deposits money and earns interest on it. The two main modes of investment in banks are savings accounts and fixed deposits. However, because of inflation and miniscule returns, the value of the money is actually going down.

Company Fixed Deposits- another investment has been the fixed deposit schemes floated by companies. Companies have used fixed deposit schemes as a means of mobilizing funds for their operations and have paid interest on them. The safer a company is rated, the lesser the return offered has been the thumb rule.

However, there are several potential roadblocks in these. First of all, the danger of financial position of the company not being understood by the investor lurks. The investors rely on intermediaries who more often than not, don’t reveal the entire truth.

Secondly, liquidity is a major problem with the amount being received months after the due dates. Premature redemption is generally not entertained without cuts in the returns offered and though they present a reasonable option to counter interest rate risk (especially when the economy is headed for a low interest regime), the safety of principal amount has been found lacking.

Equities or the stock marketare perhaps the riskiest among investment options but provides an avenue to invest in a high risk and high return game.

Common stock represents the majority of stock held by the public. It has voting rights, along with the right to share in dividends.

Preferred stock has fewer rights than common stock, except in one important area – dividends. Companies that issue preferred stocks usually pay consistent dividends and preferred stock has first call on dividends over common stock.

Investors buy preferred stock for its current income from dividends, so look for companies that make big profits to use preferred stock to return some of those profits via dividends

Mutual Funds are essentially investment vehicles where people with similar investment objective come together to pool their money and then invest accordingly. Each unit of any scheme represents the proportion of pool owned by the unit holder (investor). Appreciation or reduction in value of investments is reflected in net asset value (NAV) of the concerned scheme, which is declared by the fund from time to time.

Mutual fund schemes are managed by respective Asset Management Companies (AMC). Different business groups/ financial institutions/ banks have sponsored these AMCs, either alone or in collaboration with reputed international firms.

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