4 Bond Funds Paying Monthly Interests with Yields Above 5%

As promised, after publishing the 4 Stock Funds That Pay Monthly Dividends post, I said I would follow up with bond funds—so here it is.

Typically, investors seeking monthly payouts are retirees who need cash flow to fund their living expenses after they stop working. At this stage, financial capital needs to do the heavy lifting. Since retirees are often older and have a lower risk appetite with less time to recover from market downturns, bonds tend to be a more suitable investment. Investment-grade bonds with shorter durations are generally less volatile than dividend stocks, making them a preferred choice for this group.

The good news is that interest rates have risen, and even investment-grade bonds now offer decent yields. In fact, when screening for yields above 5%, I found plenty of options. This abundance of choices can make it overwhelming for investors to decide, so I hope this post helps narrow down the options and reduce the paradox of choice.

My Philosophy on Bonds

I have a few key principles when it comes to bond investing:

• Bond Funds Over Individual Bonds
  Buying bond funds is better than buying individual bonds, mainly due to the high minimum investment of $250,000 per bond, which makes diversification difficult. Also, some bonds are only available to institutions and individuals will always have a much smaller pool of options to choose from.
  
• Active Management in Bonds is Justifiable
  Unlike stock funds, actively managed bond unit trusts have a better track record of outperforming market indices. This is likely because bonds are traded over-the-counter (OTC), meaning price discovery is weaker and creates inefficiencies that skilled managers can exploit.
  
• Minimize Exposure to High-Yield (Junk) Bonds
  While high-yield bonds attract some investors due to their higher payouts, I prefer investment-grade bonds. The risks associated with high-yield bonds are not worth it—especially during downturns when defaults surge. We’ve seen past cases in the oil & gas, banking, and real estate sectors where defaults wreaked havoc on portfolios. That said, most bond funds include a mix of investment-grade and high-yield bonds, so for practical purposes, I suggest limiting high-yield exposure to less than 25%.

Selection Criteria

With these considerations in mind, I used the following screening criteria:

• Global Bond Exposure – To enhance diversification.
• SGD-Hedged Funds – Since this post is for Singapore-based investors.
• Minimum 5% Yield – To ensure a reasonable income stream.
• Monthly Payout – To meet the needs of income-focused investors.
• Investment-grade – At least 75% of the assets in investment-grade bonds

Here’s the list of funds, ranked from highest to lowest yield.

#1 T. Rowe Price Funds SICAV – Diversified Income Bond AXN SGD (7.22%)

T. Rowe Price is better known for its equity funds, but its Diversified Income Bond (DIB) Fund deserves attention. As of February 25, 2025, it offers a 7.22% yield, the highest in this list.

The fund primarily holds investment-grade bonds (81.5% BBB and above), keeping high-yield exposure below our 25% threshold.

It is also globally diversified, with most exposure to developed markets in North America and Europe.

With a total expense ratio of 1.01%, this is one of the lower-cost global bond funds. However, it is relatively small at US$310 million in assets, likely due to its recent launch on March 14, 2024. If it continues performing well, it should attract more investors.

#2 Schroder ISF Global Credit Income A Dis SGD-H (5.79%)

The yield here is slightly lower, but 5.79% is still attractive for retirement planning, especially considering bond quality.

Approximately 77% of the fund’s holdings are investment-grade (BBB and above). The remainder consists mostly of BB-rated bonds, which are just below investment grade.

Geographically, this fund is less diversified than DIB, as it mainly invests in US and European bonds, with minimal exposure to other regions. However, given that the US and Europe are the largest bond markets, this still provides meaningful diversification.

The expense ratio is higher at 1.41%, but the fund is well-established, with over US$5 billion in assets.

#3 Fidelity Enhanced Reserve A-M Income (G) SGD-H (5.56%)

This fund stands out for its low expense ratio (0.63%) and short effective duration (1.2 years).

Short-duration bonds usually have lower yields, but due to recent rate hikes, this fund has been able to deliver 5.56%. However, if short-term rates decline, maintaining this yield could become more challenging.

The fund is well-diversified across multiple countries, ensuring that no single country exceeds 20% exposure.

It also has a high percentage of investment-grade bonds (86.9%), the second-highest on this list.

#4 Amundi Funds Global Aggregate Bond A2 (MTD) SGD-H (5.14%)

Although this fund ranks last in yield, it still exceeds our 5% threshold and offers global diversification.

Notably, 91.84% of the bonds held are investment-grade, the highest in this list. However, the fund may hold credit default swaps (CDS), which are essentially insurance against bond defaults. While CDS can provide additional income, they also introduce default risk, as the fund may face large losses if multiple defaults occur.

With over US$4 billion in assets and an expense ratio of 1.38%, it remains a popular choice.

---

Here’s a table to summarize the details of the four funds:

Some investors might wonder why the hugely popular US$90 billion PIMCO Income Fund (which pays over 6% yield) isn’t included. The main reason is its geographic focus—it is not a global bond fund, with 88.5% of its assets in US bonds. While it remains a strong option with a solid track record, it didn’t meet the global diversification criteria.

No two bond funds are the same, and every investor has unique needs. This list is simply a screening exercise to narrow down choices—it is not a recommendation.

Let’s Find the Right Bond Fund for You

📌 Choosing the right bond fund isn’t just about yield—it’s about risk, diversification, and long-term strategy. If you’re unsure which fund fits your portfolio, let’s discuss your options. Drop your contact details [here], and I’ll personally reach out to help you make the best decision.