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Treasury Bill Investment In Nigeria: Buy T-Bill At CBN Auction Rates
==> What is a T-Bill?
==> Where can I purchase T-Bills?
==> What is the minimum amount of T-Bills I can buy?
==> When can I buy T-Bills?
==> How Do I Purchase T-Bills?
==> What is the stop rate?
==> When is the interest paid?
==> What is a true yield?
==> Is it possible to roll over my T-bill investment?
==> What are the durations? How long is my (tenor) for T-Bills?
==> Can I sell T-bills before maturity?
==> How Safe Is An Investment In T-bills?
==> What are the benefits of T-bills?
How To Start A Treasury Bill Investment
Over the past few months, I have shared practical businesses you can invest your money in. Today, I'll open your eyes to how you can rest your funds when your are searching for a business idea or planning to start one and still make income while doing so.
One of the ways you can invest your money passively in Nigeria until you are ready to execute a business project is through buying Treasury bills. Though the returns may be lower than what you can get from actively doing business, you are guaranteed a sum that comes from a safe investment.
Treasury bills are backed by the Federal Government and are outsourced through the Central Bank Of Nigeria. For instance if the current rate is 10% per annum, this simply means that an investor in treasury bills will earn an extra 10% on his capital if he invest the money for the whole year. The capital is deposited with the Federal government until the investment matures.
At different times of the year, the Federal government issue out Treasury bills. Just like in Fixed deposit, the duration for investing your money and the interest earned are fixed but in Treasury bills the minimum capital is higher. By investing in Treasury bills, you are not dealing with banks directly but investing in the government.
What is a T-Bill?
These are instruments of debt relief issued by the CBN. T-Bills are used to control money supply in the economy.
Where can I purchase T-Bills?
You can buy T-Bills from official agents. The easiest method I'll recommend is buying through your bank.
What is the minimum amount of T-Bills I can buy?
Although T-bills can be purchased for a minimum of #1,000 and in multiples of #1,000 thereafter. It is important to note that most Nigerian banks accept a minimum purchase of #100,000. However, you may decide to buy more.
When can I buy T-Bills?
T-Bills is usually offered for sale every other Wednesday (bi-weekly) as announced by the CBN. You can get this announcement on their website or on the pages of newspaper. If you don't want to miss this information, you can tell your bank account officer to notify you ahead of an issuance.
How Do I Purchase T-Bills?
If you want to buy T-Bills, you will need to visit your bank and request for an application form. The form contains spaces for your personal data, amount of T-bill you want to buy and your stop rate. Please consult with your bank if you are confused about the stop rate to use.
What is the stop rate?
Stop rate (also called Bid rate) signifies the interest rate that you are willing to receive for the principal that you are investing in the T-Bills. For instance if you indicate an interest rate of 10% as your expected rate, this will be different for other investors who may bid lower or higher than yours.
When is the interest paid?
Please understand that you get your interest credited into your bank account upfront. For instance if you buy T-bill worth of #500,000 with an interest rate of 10%, CBN will debit your account with #450,000 leaving a balance of #50,000. This means your interest of #50,000 has been paid to you upfront. When your investment matures, your are still paid your face value of #500,000. This shows you were actually paid #550,000 for your investment of #500,000.
What is a true yield?
A True Yield is calculated as the actual return on your investment. Using the example above, the initial yield for the N500,000 at 10% is #50,000 However, because your interest is paid upfront your actual true yield is the #50,000 in interest divided by the #450,000 deducted from your account. That is #50,000/#450,000 which equals 11.11% which is higher than the 10%. You can only enjoy true yield when you hold your investment to maturity.
Is it possible to roll over my T-bill investment?
Your investment does not roll over automatically. If you want to roll over your capital and interest, instruct your bank to do so on your behalf. Re-investing your capital and interest ensures that you enjoy interest that compounds.
What are the durations (tenor) for the T-Bill?
Tenor is the duration of your T-bill investment. It is how long you are willing to let your funds stay with the Federal Government. Tenor is usually in 91 days, 182 days and 364 days (3 months, 6 months, 1 year respectively). Your investment matures after the expiration of the tenor.
Can I sell my T-bills before it matures?
If you are in urgent need of funds, you may sell your T-Bills before it matures using the OTC market. Whether you will sell for more or less of your face value depends on the forces of demand and supply. Here is an instance, a #500,000 face value T-bill may sell for less or more depending on the yield expectation of the buyers. You can sell this for #505,000 (higher value) provided your face value is trading at a higher price. However you may have to sell at a loss (#545,000) if your face value is trading at a lower price.
Are T-Bills Safe And Secured?
Investment in T-Bills is regarded as one of the most secured investment ideas because it is backed by the trust of the Federal Government.
What are the benefits of T-bills?
Apart from the Interest rates, what are the benefits of T-bills?
==> It gives a steady flow of income
==> You can enjoy high interest rates from a passive investment
==> Your investment is safe and guaranteed
==> Investment in T-bill is passive (requiring little or no physical effort)
==> T-bills can be used as a collateral
==> It can be converted to cash quickly
Need more information on investing in Treasury bills? Join the discussion on treasury bill here