CITIBANK Bhd, in joint effort with Commerce Trust Bhd, has introduced the RM250mil Commerce Trust Steady Returns Bond Fund, the first bond fund of its kind in Malaysia, aimed at offering investors secured, predictable returns, and better yields than the current fixed deposit rates.
Unlike conventional bond funds, the Commerce Trust Steady Returns Bond Fund has a three-year maturity period with a buy and hold strategy. Its objective is to beat the current 12-month fixed deposit rate and provide regular income distribution twice a year (in January and July). It also offers lower interest rate risks.
Citibank director Allen Tan said the collaboration with Commerce Trust as the new bond fund manager reflected the partners' strong commitment and understanding of the investment market and the Malaysian investors.
“This close-end bond fund will be a good option for investors who are largely risk-averse by nature and looking at low-risk investment,” he said at the signing ceremony to mark the collaboration between Commerce Trust and Citibank in Kuala Lumpur yesterday.
The Commerce Trust Steady Returns Bond Fund only requires a minimum investment of RM10,000 and a maximum investment of up to RM12.5mil. There is no upfront fee, low annual management fee of 0.8% and up to 3% exit fee for early redemption.
The initial selling price of the bond fund is RM1 and the offer period for the fund runs from Oct 13 to Nov 24, after which no units will be offered for sale.
Citibank vice-president (investment and insurance) Charles Sik told reporters that Citibank had full confidence in the success of the new bond fund.
“We believe there is a growing appetite for bonds in Malaysia. In fact, when similar bonds were introduced in other countries like Hong Kong, Taiwan and Singapore, they were proven successful,” he added.
Based on model portfolio of AAA, AA and A rated bonds, he said: “The potential yield to maturity is 4.2% to 4.6% per annum after fees. The indicative current 36 months' fixed deposit rate is about 3.2%.”
(However, these returns are only indicative and will depend on the actual bond portfolio. It is also assumed that there are no cases of default in the portfolio).
Meanwhile, Commerce Asset Fund Managers Sdn Bhd senior general manager (product development and marketing) Lai Tak Heong said the bond fund aimed to be cushioned from interest rate risk fluctuations.
“This fund is also a less volatile investment compared with the stock market for investors,” he said, adding that even equity investors with higher risk appetite could take up the fund as it offered a diversified portfolio to reduce the volatility aspect of their investment portfolio.
Lai said a large proportion of the fund would be invested in 20 selected companies with high yield corporate bonds rated by Rating Agency Malaysia Bhd and Malaysian Rating Corp Bhd as required by the Securities Commission.
“Among the selected companies are those in plantation, property, telecommunications and financial services sector,” he added.