An alternative to shares

With the sharemarket offering fluctuating returns, those with a low risk profile may be looking for an alternative to the standard shares, but is there another option?

Australian Government Bonds raise money for the Government to fund projects and in return, offer a guaranteed rate of interest and after an agreed period, your loan will be paid in full.  Commonwealth Government Securities will soon be available for purchase on the Australian Stock Exchange listed as ‘Exchange-traded Treasury Bonds’ and ‘Exchange-traded Treasury Indexed Bonds’.

Exchange-traded Treasury Bonds have a fixed face value, which will be paid at maturity. They carry a fixed rate of interest with will be paid every six months, over the life of the security.

Exchange-traded Treasury Indexed Bonds have a face value which is adjusted for movements in the Consumer Price Index (CPI). Interest is paid quarterly at a fixed rate, on the adjusted face value. This means the amount of interest you receive will vary from one quarter to the next.

Exchange-traded Treasury Bonds and Exchange-traded Treasury Indexed Bonds are also known as:

  • Commonwealth Government Security (CGS) depository interest
  • Australian Government Bonds
  • Exchange-traded Australian Government Bonds

How do you buy them?
Government Bonds can be bought and sold on the ASX and you can do this through a financial advisor, online trading account or stockbroker.

What are the benefits?
So why should you consider a Government Bond over shares? Bonds have the following benefits:

  • you always receive the face value of the bond if you hold to maturity, so no fluctuation in capital
  • you will receive regular interest payment, either quarterly or half-yearly
  • you can buy and sell easily, whenever the ASX market is open

Are there any risks?
Selling Government Bonds before they reach maturity will mean that you have to accept market value, i.e. what others are prepared to pay. This could be less than face value.

Exchange-traded Treasury Bonds are also affected by inflation. Find out more about Australian Government Bonds.

As with any financial product, you should consider if it is right for your circumstances and seek independent financial advice. Find an independent financial advisor in your area by visiting Financial Planning Association of Australia