Low-income earners with excess money lying fallow in their accounts may be missing out on some investment opportunities in the monthly Federal Government of Nigeria (FGN) Savings Bonds, particularly if the interest rates on the instruments are further raised next month.
No doubt, “investment” is fast becoming one of the most frequently used words as awareness on financial literacy gains momentum in Nigeria, but not as much as those who have heard the word can find their way around investing in the nation’s financial markets.
Last week, the stock market slumped to its weakest level in two years amid sell pressures despite relatively impressive first quarter results, the development may have further discouraged some potential investors who were skeptical about the possibility of a market rebound in the short to medium term.
An alternative to stock investment for risk-averse individuals is the FGN Savings Bonds issued monthly by the Debt Management Office (DMO). This form of investment basically allows investors to loan out their excess money to the federal government for an agreed period while they earn a percentage of their investment annually, semi-annually or quarterly until the bond matures and the investor gets his initial payment.
Proceeds from these bonds are used by the federal government to fund its budget deficit. It also helps in promoting savings culture and enhancing financial inclusion in the country as income earned from the instruments is exempted from taxes.
The agreed time for the repayment of the bond is referred to as maturity date; the percentage of the investment to be paid every three months is coupon; while the investor is called the bondholder.
In an auction conducted last week, the DMO offered two-year and three-year FGN Savings Bonds for subscription for the month of May with higher interest rates compared with those issued in the previous two months. Also, the DMO assured a quarterly coupon payment for the bonds.
The two-year tenor was offered at 11.745 percent, while the three-year instrument was offered at 12.745 percent. These correspondingly represent higher rates compared with 11.276 percent and 12.276 percent which the debt instruments were issued in April, and 11.62 percent and 12.62 percent in March.
This implies investors can get more value for their investment and much more if the country’s inflation rate sustains its downward trend having decelerated for three straight months to March this year.
A N50,000 invested on a three-year bond tenor in May 2019 at 12.745 percent would deliver N6,372.5 every three months till May 2022, bringing the total possible coupon payment to N76,470 excluding the bullet repayment of the invested N50,000 due on the maturity date.
How to participate
The bonds are first issued to the public in the primary market in an auction system just like it was conducted last week but can later be sold at the secondary market if the investor wishes to opt out before the maturity date.
Interested investors can contact stockbroking firms appointed as distribution agents by the DMO. A list last updated on February 6, 2019, and containing 129 agents can be accessed on the debt agency’s website.
A unit of either of the bonds cost N1,000. However, investors are expected to make a minimum subscription of N5,000, translating to 5 units of the instrument. This subscription can later be increased in multiples of N1,000, but such subscription cannot exceed N50 million.
Investments in these bonds are backed by the full faith and credit of the Federal Government of Nigeria and charged upon the general assets of the country, indicating investments in the asset are safe as it is almost impossible for the government to default payment.
