SIMPLE STEPS TO INVESTING IN TREASURY BILL

 

What are treasury bills?

Treasury bills are financial instruments issued by a sovereign state or by the central bank as a form of short term government borrowing. The repayment of Treasury bill is backed by the full weight of the state and is considered almost risk free investment as the risk of default is very low. As a consequence return on treasury bills are usually low but in times of high interests T-bills they offer high return.

What to consider in investing in treasury bills.

Before deciding to invest in T-bills, an investor must consider his personal and family circumstances and his financial needs. Since T-bills maturities are short term(usually 91, 182, 364 days maturities) it is ideal for an investor with short term perspective and has current financial needs.

How to invest in T-bills

Anyone with a bank account can easily invest in T-bills. Most banks are actively involved in buying and selling of T-bills. The lowest denomination is N1, 000 but it is traded in chunks. However most bank would require a minimum investment which be up to N50, 000 or more depending on the bank. T-bills are auctioned bi-weekly and the auctions are done by CBN on behalf of government. To buy T-bills, you must have a registered bank account or an account with a registered dealer. Then you give a trade mandate by filling an application form to indicate your volume of trade with right amount.  Your banker or dealer will advise on rates and periods of maturity.

Interest and yield

Interest on T-bills is paid upfront and credited to your bank account. e.g. if you apply for the purchase of N100,000 T-Bills at 10%, the CBN debits your account with N90,000 and N10,000 interest is paid instantly.  While at maturity stage, you will be paid the face value of N100,000.
Yield (return on investment)  can be calculated by dividing the return on investment by the sum invested. Using the example above:

Yield =  10,000  = 11.11%

             90,000

 
Rollover

Principal and interest on your T-Bills can be rolled over upon maturity. This gives opportunity to earn compound interest on your money. There is an active secondary market for T-Bills and you can trade in your T-bills before maturity, using the OTC market. 

Finally, it is advisable to seek out the help of a Financial Advisor before investing any financial instrument. This is to help you select the right investment that will suit your investment objective. 

For more information send email to info@hillcrestprofessional.com or call 08039286522