Investment instruments in financial market

There are lots of savings and investment instruments in the Nigerian financial market that can enable prospective investors to fulfil their wealth creation and developmental goals.

The investment products include the Federal Government of Nigeria Bond (FGN Bond), FGN Savings Bond (FGNSB), Nigerian Treasury Bills (NTBs), Commercial Papers (CPs), Mutual Funds, Real Estate Investment Trusts and Stocks.

Despite the growth in the savings and investment products in Nigeria, the country still records low savings and investments.

Akinwunmi Ayodele, head of research, FSDH Merchant Bank limited said low savings in the financial system means low amount of money will be available for lending purposes and the available funds will command high interest rate.

The ratio of Gross National Savings to the Gross Domestic Products (GDP) in Nigeria is one of the lowest among some selected countries including Nigeria, Kenya, South Afica, India, Malaysia, China, United Kingdom, and USA, according to FSDH Research.

Here is what you need to know about these savings and investment instruments in the financial market.

FGN Savings Bond (FGNSB) – FGNSB targets retail investors and those who do not have the required minimum investment sum to invest in the FGN Bonds. The minimum amount to invest in FGNSB is N5,000 and the maximum is N50 million. FGNSB is of two tenors, 2 and 3 years. It is issued for 5 days starting from the first Monday of every month. Government pays interest on the bond every three month and it is traded on the floors of The Nigerian Stock Exchange (NSE).

The Bond can be used as collateral to obtain loan from any financial institution in Nigeria and the income from it is free from tax. Potential investors will need to speak with their investment managers and advisers.

Nigerian Treasury Bills (NTBs) – FGN borrows money from the public on a short-term basis (within one year) using NTBs. NTBs are issued at a discount to the face value. This means that investors pay an amount that is lower than the face value and while the government will pay the investors the full face value at maturity. NTB in Nigeria has three tenors which are 91, 182 and 364 days and is issued twice a month.  NBTs can be used as collateral to obtain loan from any financial institution in Nigeria and the income from it is free from tax. Potential investors will need to speak with their investment managers and advisors.

Corporate Bonds – Companies in good credit and financial standing borrow money from the financial market on a long term basis by issuing Corporate Bonds. Corporate Bond share certain similar features with the FGN Bonds in terms of payment of coupon, tenor and qualification for tax exception. However, it carries higher investment risks than the FGN Bond. Companies fix the minimum investment sum to invest in their Bonds. Potential investors will need to speak with their investment managers and advisers.

Commercial Papers (CPs) – Companies in the private sector issue CPs to raise short-term finance to fund their business operations. CPs is issued in tenors ranging between a minimum of 15 days and a maximum of 270 days. CPs is also sold to investors at a discount to the face value. Usually, the minimum investment in a CP is N5million. The income on it is free from tax. Potential investors will need to speak with their investment managers and advisers.

Real Estate Investment Trusts (REIT) – REIT is a special kind of investment vehicle that pools resource together to invest in real estate, therefore allowing individual investors to partake in the benefits of the underlying properties. There is no minimum amount to invest in a REIT so it is suitable for all categories of investors. Potential investors will need to speak with their investment managers and advisers.

Stocks – When an investor buys a stock or share of a company he becomes a part owner of the company and he shares part of the profit of the company in a form of dividend, bonus and capital appreciation. Stock investment attracts significant amount of risks as investors can lose their entire investment if the company fails. Therefore, investors should always speak to investment professionals before investing in the equity market. It is also a long term investment. Various stockbroking firms have different minimum amount to open a stockbroking account with them.

FSDH Research notes, however, that these investment instruments need more supports than are currently available to enable existing and potential investors to fulfil their wealth creation and developmental goals.