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How investors can take advantage of FGN Bond issuance in Q2 2019

FGN Bond

The Debt management office (DMO) has released the calendar for 2019 second quarter FGN Bond issuance.

FGN Bond is a bond issued by the Nigerian government in exchange for cash at a given interest rate and a repayment period. It also states how payments of the principal and interest will be made. A Bond is a confirmation from a borrower that it borrowed money from a lender at a given interest rate and repayable over a period. They also include the minimum amount that can be subscribed to by the lender and in what multiples.


Benefits investors stand to gain

Investors in bonds earn an interest that will be paid quarterly directly into their bank account. Interestingly, you need not to be rich to invest as anyone with as little as N5,000 can invest in the bond.


Investing in FGN Bonds is a good way to save towards your House rents, marriage, an occasion, school, project, retirement, etc.


How will the interest and principal be paid?


The interest will be paid quarterly into your bank accounts while the principal will be paid at maturity depending on what duration you subscribed to. Retail investors looking to invest in the FGN bond only need a minimum of N5,000 to invest. Subsequent investment over N5,000 will be in multiples of N1,000. Meaning that investors cannot invest N5,500. It’s either N6,000 or N13,000 or N30,000. The maximum amount a single retail investor can invest in the FGN Bond is N50 million.


What if I decide to sell before maturity?


Investors need not to hold on to the bond until maturity. If you need cash anytime during the duration of the bond, you can sell your bond in exchange for cash. However, the portion of the interest that you are not entitled to earn because you have sold will not accrue to you any longer. For example, if you buy April 24 and sell July 14, because you cannot wait until April 2023 to get your principal, you will only be entitled to the interest earned between April 24 and July 14.


Bonds have certain characteristics similar to stocks; their prices can often be higher or lower than their face value. The face value of a Nigerian bond is typically N1,000. So assume an investor bought FGN bond at N1m and at an interest rate of 13 percent per annum. It means that for every N1,000 of your investment, such an investor will earn N130 (also known as the coupon rate). So, if you decide to hold your N1m to maturity, you will earn N130,000 annually.


In the secondary market, bond prices behave like stock and react to the forces of demand and supply. Supposing lending rates in the country suddenly rise to 16 percent. It means that the bond that earns you 13 percent is no longer attractive as the FG will only continue to pay the N130 for every N1,000 in Face value.


Leveraging on technology to buy FGN bonds.


The penetration of the internet and technology has caused several disruptions in the ecosystem. Fortunately, the fixed income market is not left out in this disruption. There are mobile applications such as TradeFi, that enable retail investors to buy FGN Bonds from the comfort of their phones and other mobile gadgets. TradeFi app also allows for willing investors to learn the basics of fixed income trading and better still you can reach out to a stockbroker.


The bond is safe and is backed by the full faith and credit of the FG. Government bonds hardly default, so you are nearly 100 percent sure that you will get your money back in full along with the interest.

Ololade Akinmurele

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