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Investing in Government equities.
Understanding Treasury BILLS & BONDS.
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Investing in Government equities.
Understanding Treasury BILLS & BONDS.
Retweet and share widely.
Government securities are debt management obligations of the Kenyan gov't that individuals & organizations can invest in.
If you invest in government securities, you are essentially loaning the gov't money for a set period of time.
If you invest in government securities, you are essentially loaning the gov't money for a set period of time.
WHY INVEST IN GOV'T SECURITIES?
1/ They are considered risk free.
2/ They offer better returns than what banks offer via fixed deposit and savings account.
3/Diversity- Bonds have tended to zig when stocks have zagged, providing cushion for the crunching stock market.
1/ They are considered risk free.
2/ They offer better returns than what banks offer via fixed deposit and savings account.
3/Diversity- Bonds have tended to zig when stocks have zagged, providing cushion for the crunching stock market.
There are 2 types of gov't securities.
1) Treasury Bills (3-12 months)
2) Treasury Bonds (1-30 years)
We'll start with T-Bonds
T-Bonds are a secure, medium to long term investment that offers you interest payments every six months throughout the bondβs maturity.
1) Treasury Bills (3-12 months)
2) Treasury Bonds (1-30 years)
We'll start with T-Bonds
T-Bonds are a secure, medium to long term investment that offers you interest payments every six months throughout the bondβs maturity.
Most T-Bonds in Kenya have a fixed rate. The interest rate determined at auction is locked in until maturity.
Investors purchase a certain amount, then receive a percentage of that amount every 6 months throughout the bonds maturity
Bonds require a MIN investment of ksh 100,000
Investors purchase a certain amount, then receive a percentage of that amount every 6 months throughout the bonds maturity
Bonds require a MIN investment of ksh 100,000
Once the bond matures, the investor receives a final interest payment and their initial investment.
Example:
Ksh 100,000 in a 10yr Bond with a coupon rate of 5% p.a. every 6 months, you will be receiving Ksh 2,250
At the end of the 10 yrs, you get your initial investment back.
Example:
Ksh 100,000 in a 10yr Bond with a coupon rate of 5% p.a. every 6 months, you will be receiving Ksh 2,250
At the end of the 10 yrs, you get your initial investment back.
TYPES OF BONDS
1) Fixed Coupon Bonds- The interest rate associated with the bond will not change over the bond's life.
2) Infrastructure Bonds- Used by the gov't for specified infrastructure projects. They are *tax exempt.
3) Zero Coupon Bonds- They have no interest payments.
1) Fixed Coupon Bonds- The interest rate associated with the bond will not change over the bond's life.
2) Infrastructure Bonds- Used by the gov't for specified infrastructure projects. They are *tax exempt.
3) Zero Coupon Bonds- They have no interest payments.
WHY INVEST IN T-BONDS?
1) Security- T-Bonds are considered risk-free investments.
2)Regular Returns- Most bonds carry semi-annual interest payments, hence investors receive returns every six months
3)Flexibility- The CBK auctions several different types of bonds.
1) Security- T-Bonds are considered risk-free investments.
2)Regular Returns- Most bonds carry semi-annual interest payments, hence investors receive returns every six months
3)Flexibility- The CBK auctions several different types of bonds.
TREASURY BILLS
T- Bills are secure, short-term investments that offer returns after a relatively short time.
They are available with maturities of 91, 182, & 364 days.
They are auctioned each week and require a MIN investment of Ksh 50,000.
T- Bills are secure, short-term investments that offer returns after a relatively short time.
They are available with maturities of 91, 182, & 364 days.
They are auctioned each week and require a MIN investment of Ksh 50,000.
T-Bills are sold at a discount.
This means that investors determine a face value they would like to purchase, which is discounted by a certain amount when they invest.
On maturity, the investor receives the full face value.
This means that investors determine a face value they would like to purchase, which is discounted by a certain amount when they invest.
On maturity, the investor receives the full face value.
For example
Taking a 364-day bill with a face value of Ksh 100,000 and a 10% interest rate.
You would have to pay ksh 90,392 and after 364 days, you would get ksh 100,000
Taking a 364-day bill with a face value of Ksh 100,000 and a 10% interest rate.
You would have to pay ksh 90,392 and after 364 days, you would get ksh 100,000
There are 2 ways to invest in T-Bonds & Bills.
1) Directly through the Central Bank.
2) As a nominee of a commercial or investment bank.
This is through a client account. The bank invests on your behalf hence you have to pay additional fees.
1) Directly through the Central Bank.
2) As a nominee of a commercial or investment bank.
This is through a client account. The bank invests on your behalf hence you have to pay additional fees.
How to Invest in Bills & Bonds
1) Open a *free CDS Account with the central bank.
2)You need to hold a bank account with a Kenyan commercial bank to open one.
3)You then fill in a mandate card from the CBK or any of it's branches which will be signed by two reps from your bank
1) Open a *free CDS Account with the central bank.
2)You need to hold a bank account with a Kenyan commercial bank to open one.
3)You then fill in a mandate card from the CBK or any of it's branches which will be signed by two reps from your bank
4) You also have to submit a passport-sized photo of yourself which has to be certified & stamped by a rep from your bank
5) You'll need to submit a clear copy of your National ID or Passport.
5) You'll need to submit a clear copy of your National ID or Passport.
TAXES
Discount earned on T- Bills is charged a withholding tac of 15%.
Interest and discount on T- Bonds with a tenor of below 10 yrs are charged a withholding tax of 15%.
For bonds with a tenor of more than 10 yrs, they are subject to 10% withholding tax.
Discount earned on T- Bills is charged a withholding tac of 15%.
Interest and discount on T- Bonds with a tenor of below 10 yrs are charged a withholding tax of 15%.
For bonds with a tenor of more than 10 yrs, they are subject to 10% withholding tax.
That's it on BILLS & BONDS
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If you enjoyed this thread:
1. Follow me @kahome_steve for more amazing threads.
2. Retweet the first tweet so that other people may see it.
Do note that all the information from this thread is from the Central Bank of Kenya website.
If you would love to learn more on Bills and Bonds, Check out their website for more details.
If you would love to learn more on Bills and Bonds, Check out their website for more details.
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