Driven by higher interest rates in recent years, many more investments have promised to pay an attractive guaranteed return.
There’s a certain comfort in knowing that you will earn guaranteed returns on your investments. You can avoid losing any money, and you can start planning how to use your principal investment and returns you will earn in the future.
But, not all guaranteed investments are built the same.
Read Also: 6 Investments In Singapore That Provide Guaranteed Principal And Returns
You Must Understand What You’re Investing In
If you do not understand what you’re investing in, you’re better off missing out on a great investment opportunity.
The last thing you want is to invest in something you don’t understand in, and it turns out to be a scam.
You may also think you’re putting your money in an investment that will pay you a guaranteed return, but it does not. With certain investments, you may also have to read the terms and conditions very closely, as you may just be getting higher interest on part of your investment rather than the full amount or that the provider will make top-ups to your investment if they hit a target rate of return.
Don’t Get Lured By Higher Guaranteed Returns
Of course, there have always been legitimate investments that offer guaranteed returns. Just remember, how much return you can expect to earn will also be based on how much risk you are taking.
Imagine a scenario where there are three investments: Investment A that pays a guaranteed return of 2.45% p.a.; Investment B that pays a guaranteed return of about 4.9% p.a.; and Investment C that pays a guaranteed return of about 6% p.a.
Even though they are all guaranteed investments, we should instinctively know that Investment A should carry the lowest risk and Investment C should carry the highest risk.
In this example, Investment A is the 12-month fixed deposit by DBS, Investment B is the current yield of Astrea 8 Class A-2 bonds, and Investment C is what BigFundr, an MAS-licenced real estate investment platform, expects to pay on its real estate-backed loans.
In some rare cases, you may be able to earn a better return with roughly the same investment risk. For example, DBS is paying 2.15% p.a. on its 6-month fixed deposit. The latest 6-month Government T-bills, auctioned on 26 March 2025, paid 2.73% p.a.
Guaranteed Returns Are Ultimately Only As Good As The Entity That Gives The Guarantee
Despite being able to earn “guaranteed returns”, you can still earn very different rates of return. This is because guaranteed returns is only as good as the entity that is guaranteeing it – and we highlight this with the guaranteed investments discussed above.
The fixed deposits by DBS is guaranteed by one of the safest banks in the world, with a strong credit rating. Moreover, individuals enjoy SDIC protection on up to $100,000 of their deposits with DBS.
The 6-month Government T-bills is guaranteed by the Singapore Government – one of the few triple-A rated economies.
This is why the fixed deposits with DBS and 6-month Government T-bills can be referred to as the risk-free rate. Any amount we earn higher than what these investments give us should be incrementally riskier.
Bonds are typically backed by the companies that issue them. In the case of Astrea 8 Class A-2 PE bonds, which currently has a yield of about 4.9%, it is backed by investee companies with its private equity funds. It’s also important to note here that even though Astrea is launched by Azalea, an indirect wholly-owned subsidiary of Temasek, the guaranteed returns is not backed by Temasek or the Singapore Government. Furthermore, when the Astrea 8 Class A-2 PE bonds first came out, they were offering 6.35% p.a. After its listing on the SGX in July 2024, its price appreciated based on investor demand and the lower interest rate environment today – which has lowered its yield.
And, the guaranteed returns offered by BigFundr comes from its real estate-backed loans. This means the loans you invest in are backed by real estate as collateral. The platform also gets other guarantees in the form of a personal guarantee from the borrowing entity.
As we can see with the investments discussed, a guarantee from the Singapore Government is more secured than a guarantee from the private equity funds under the structure of the Astrea 8 Class A-2 bonds, which in turn is more secure than the guarantee from the real estate-backed loans by BigFundr.
The post Why Guaranteed Returns On Your Investments Isn’t Always Guaranteed appeared first on DollarsAndSense.sg.
