Jurisdiction - Singapore
Reports and Analysis
Singapore – Types Of Investment Instruments.

28 October, 2013

 

Legal News & Analysis – Asia Pacific – Singapore  Investment Funds

 

There are a number of investment instruments that are traded on the Singapore Exchange. The characteristics of the more common instruments are explained briefly below.

Shares


Shares are issued by companies. A person who subscribes for shares issued by a company invests in the company in return for a partial ownership interest in the company. A shareholder has the right to vote on certain company matters that affect his ownership but does not have a right to run the company. He may receive dividend payments from the company if it is profitable. If the company becomes insolvent and is wound up, the shareholder will be entitled to a pro-rated share of the assets of the company after it has paid off all its creditors.


There are various types of shares:

 

  • Ordinary shares: These are the normal type of shares issued by a company. They may sometimes be divided into different classes, with each class of share carrying with it different rights. For example, a company may issue Class A shares which each carry two votes per share, and Class B shares which each carry one vote per share.
  • Preference shares: A preference share entitles the preference shareholder to a specified preferential right. For example, many preference shares carry a right to receive a higher percentage of dividends than an ordinary shareholder. Preference shares may be issued as redeemable or as convertible.
  • Redeemable preference shares: A redeemable share is one where the company will pay the shareholder a specified sum by way of redemption of the share. Redeemable shares may be made redeemable at the option of the shareholder or at the option of the company.
  • Convertible preference shares: A convertible share gives the holder a right to convert the share into another instrument issued by the company. Usually, this right will be a right to receive ordinary shares in exchange for the preference share. The rate of conversion will be specified by the company.

Bonds


Bonds are a form of debt. Instead of borrowing from a bank, a company may choose to borrow from the public and issue bonds. The holder of a bond lends a specified sum to the company. In return, the company agrees to pay interest on the debt at a specified rate. It also agrees to repay the principal amount lent to the bond holder on a specified date (the maturity date). Bonds are usually issued with a credit rating which reflects the creditworthiness of the issuer.


Bonds may also be issued as convertible bonds. The bond may be converted at the option of the holder or of the company into shares in the company at a pre-specified rate of conversion. Such bonds usually pay a lower interest rate than ordinary bonds, but in return for accepting the lower rate, the holder is given the right to exchange the bond for shares in the company.

 

Collective Investment Schemes


In a collective investment scheme (“CIS”), money from a group of investors is collected into a common pool. These funds will be held by a trustee on behalf of the investors. The trustee will appoint a manager to invest the funds in a range of investment instruments. The types of investments that the manager can make will usually be specified by the terms of the CIS. The investors receive units in the CIS. Such units may be redeemed, and the redemption amount is often based on the net asset value of the CIS. A CIS may also be known as investment funds, managed funds, or unit trusts. A Real Estate Investment Trust (“REIT”) is a specialised type of CIS which invests only in real estate properties or real estate related assets. A REIT is subject to greater regulation than an ordinary CIS as the Code of CIS specifies that the manager must meet certain specific duties.


Business Trusts


A business trust is similar to a CIS. As with a CIS, money from a group of investors is collected into a common pool. Unlike a CIS, the business trust is used for the conduct of business. The funds collected will be invested into a high capital, income yielding asset such as ships, real estate properties, or infrastructure. The income received from the invested assets may be paid out the holders of units in the business trust.

 

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For further information, please contact:

 

Rachel Eng, Partner, WongPartnership

rachel.eng@wongpartnership.com


Teck Howe Tan, Partner, WongPartnership

teckhowe.tan@wongpartnership.com


Kah Keong Low, Partner, WongPartnership
kahkeong.low@wongpartnership.com

 

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