What Are T-Bills ETFs and Should You Buy Them?

T-Bills ETFs let you invest in government bonds and are low-risk investments that may complement your portfolio diversification strategy.

Priscilla Lee

by Priscilla Lee on Feb 23, 2024

monitoring investment chart from laptop

T-bills Exchange Traded Funds (ETFs) may not be as commonly heard as some investment products but they are conservative investments that are worth including in your investment portfolio diversification strategy.

Read on to find out what T-bills ETFs are about, differences between T-bills and T-bills ETFs as well as the pros and cons of investing in either one of them.

Related: What Are Singapore Treasury Bills and Are They a Good Investment?

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What Are T-Bills ETFs

If T-bills are short-term, low-risk government bonds that pay a fixed interest rate, then T-Bills ETFS are unique hybrid investment products that combine the features of securities, bonds and funds into one. Unless you are totally new to investing, you must have heard of ETFs, which is a type of investment fund that allows investors to gain exposure to a diversified portfolio of underlying assets instead of one individual stock. T-bills ETFs work in the same way to pool together an index of bonds or a diversified basket of bonds, issued by governments or entities linked to governments.

An example of a local T-bills ETF is the ABF Singapore Bond Index Fund, also the first of such ETFs launched in Singapore in 2005. The index comprises bonds issued by the Singapore Government Housing Development Board (HDB), Temasek Financial and Land Transport Authority. If your investment strategy favours investing overseas rather than local, there are many T-bills ETFs traded around the world too. iShares 20+ Year Treasury Bond ETF, SPDR Bloomberg 1-3 Month T-Bill ETF and ABF Pan Asia Bond Index Fund are some that may pique your interest.

Related: A Guide To Exchange-Traded Funds (ETFs) In Singapore

Compare Online Brokerages in SingaporeFind Out More

T-bills vs T-bills ETFs

Here is a quick comparison of the two based on Singapore T-bills and T-bills ETFs:

 T-bills T-bills ETFs
DescriptionShort-term Singapore Government Securities or government bonds Investment product tracking a basket of bonds issued by governments or entities linked to governments
Maturity6 months or 1 year. No early redemption allowedNo maturity dates. Can hold onto them indefinitely
RiskLow risk, fixed returnsLow risk but no fixed returns. Note that some bonds within the T-Bill ETF may exit the fund upon maturity. Hence the fund will be rebalanced based on the index objective. Investors may have capital gain or loss depending on when they sell off the T-Bill ETF
Payment MethodCash, SRS or CPF funds Cash, SRS or CPF funds
Investment amountMinimum investment of S$1,000, no capMinimum investment as low as S$1, no cap
Capital guaranteedCapital guaranteedNot capital guaranteed
How to buy Via local banks (DBS/POSB, UOB, or OCBC)Via stock exchanges. Buy through a brokerage account or via the CPF Investment Scheme (CPFIS)

Related: Best Online Brokerages for ETF & Unit Trust Trading 2023

Pros and Cons of Investing in T-Bills vs T-Bills ETFs

Even if T-bills and T-bills ETFs are both regarded as conservative investments, you still must understand their pros and cons to ensure they truly complement your investment portfolio diversification strategy. Furthermore, because T-bills ETFs carry traits of both stock-like instruments and bonds, trading them may not be as low risk as capital-guaranteed T-bills.

Here are a few things you should take note of when deciding which is more suitable for your investment appetite.

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Minimum Investment Sums

Both T-bills and T-bills ETFs have relatively low initial minimum investment sums to start with. Minimum investment for T-bills is S$1,000 and as low as one board lot on the exchange for T-bills ETFs. Comparatively, T-bills ETFs are a lot more affordable for young investors who do not have a lot of capital to start with. Since there is no maturity for T-bills ETFs, investors can gradually build their portfolio overtime and exit the market when they reach their investment goals.

Related: How Much Money Do You Need To Start Investing?

Fixed Returns vs Non-Fixed Returns

Both are conservative investments that are low in risk but T-bills have fixed returns and fixed maturity period hence making it rather hassle-free for investors. T-bills ETFs, on the other hand, do not have fixed returns. This means there is a potential for investors to make more or less than expected when the fund rebalances itself when some bonds mature. Constant monitoring of the T-bill ETFs is required if investors want to sell the ETFs at the most profitable time.

That said, T-bills are more suitable for those who prefer least effort and participation to grow their money. T-bills ETFs are ideal for retail investors who are used to monitoring their investment portfolio.

Portfolio Diversification

When it comes to investing, low risk does not mean no risk. Should an unexpected event such as the bond issuer failing to repay the principal amount at maturity, T-bills ETFs investors are in a better position to retain most of their capital compared to the T-bills investors.

Safe to say that investing in Singapore T-bills is close to no risk but you may want to do your due diligence when investing in overseas T-bills since you may not be as familiar with foreign markets. If you consider yourself a risk-averse investor, sticking to Singapore T-bills with very predictable outcomes may offer more peace of mind while you earn the passive income.

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Both T-bills and T-bills ETFs are conservative investments that are suitable for investors who prefer to deal with low-risk trading that offer predictable returns. While both are bond-related, do note that Singapore T-bills can only be purchased via local banks while T-bills ETFs investment must be facilitated by brokerages.

Not sure how to select the right broker? Refer to our roundup of the best online brokerages, where our professional analysts have shortlisted the top brokerages based on their commission fees, international market access and platforms capabilities.

Compare Online Brokerages in SingaporeFind Out More

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