Why Invest In Treasury Bills – For the longest time, I wanted to invest in treasury bonds and government bonds. But he considers me a layman, what did he know? The grand and imposing building that is the Central Bank of Kenya (CBK) did not calm my nerves.
So, I supported, I waited and then I waited some more… As a result, sometime in 2014 I decided to do some research and jump right in with the rest of the people who invest in Government securities.
Why Invest In Treasury Bills
Treasury Bills and Bonds are financial instruments, used by the Government through the Central Bank of Kenya, to raise money. Clearly defined, it is the Government that borrows money from the public.
Invest In Government Treasury Bills And Bonds
Usually, the Government will do this to help meet budget deficits or to enable capital projects that require additional budget support.
Let’s start my journey again…… I had to get a mandate card from the Central Bank (CBK) to fill out and then send it back, duly completed and signed. On the card, there are special provisions where your local bank has to fill in and sign, so I submitted the same to my bank branch and they signed it (there is a provision for 2 signatories) and they checked my photo of passport (on the back). ), as a real photo of me.
Once I was ready and armed with my original identity card (ID) I went back to the not so impressive building and submitted my documents.
As they were in order, I was told they would get back to me within the next 7 working days via email.
Cash And Cash Equivalent
After that time, I received an email from the National Debt Office, it started with “Dear Investor” (it felt really good to be labeled like that…) giving me details about my new CDS number and the Virtual Account number, with instructions. on how to use both.
I had to do a little more research… Every week CBK has auctions for T-bills for different tenors, namely day 91, day 182 and day 364. How to participate is to download the form from the website of CBK, fill it out and make sure to return it within the indicated terms, to participate in the auction.
The process used to require submitting the form physically, however, CBK now has a provision for electronic submission. Currently, applications are usually submitted by Thursday 2pm. and then the results of the auction will be announced the next day.
For T-bonds there is usually a Bond sale once a month, and the procedure is more or less the same. Back then, the forms to fill out were different, for T-bills and T-bonds, however, CBK has since been harmonized and you only need to fill them in as appropriate. From the CBK website, applications must be submitted by Tuesday 2pm. on the last week of the Bond sale.
T Bills At 3.32% Yield
The dates on which T-bills and bonds go on sale are usually published in the daily newspapers, so keep an eye out for details here as well as on the CBK website itself.
Back to my experience, I went to the CBK website and downloaded the application form. And since I was a beginner, I decided that I would first invest in Kshs. 50,000 only, which meant I had to invest in T-bonds which was the minimum investment.
I filled out the form and physically took it to CBK and dropped it in one of the boxes provided for T-bond bidding forms. The day the auction results were out, I called the National Debt office to confirm if my application was successful and what details I needed to give to my bank to transfer the money. They ordered me to pay the amount by next week Monday at 2pm.
Although the CBK generally floats both financial instruments at a discount, Bonds and Treasury Bills are different in the way you get your return.
Treasury Bills (t Bills): Definition, Rates & Maturity
For T-Bills, the discount rate is pre-marked so that you pay a discounted amount at the beginning of the deposit period and receive the face value of the Bill at maturity.
In the case of T-Bonds, interest is earned periodically, usually semi-annually. Information on payment dates is usually provided in the prospectus for each bond sale, on the CBK website.
If you are in the diaspora and want to invest, the process is probably different. Check out the CBK website which is full of information and you will be sorted.
Therefore, there is really not much to the process, and as mentioned before, this investment route is generally as safe as a loan to the Government itself. Interest rates have been attractive over time.
Land Bank Of The Philippines
If you are very interested in T-bills and bonds, but still feel intimidated by the process described above, I strongly advise you to invest through the Bond investment fund.
In conclusion, I will talk a little about the technical side of investing in Government bonds, Taxes and why infrastructure bonds are my personal favorite. supported by the US government. Treasury Bills are money market instruments. Treasury Bills are short-term money market instruments issued by the government to raise short-term money. When the government needs money for a shorter period of time, they issue Treasury bonds to raise the money. but Treasury bonds are a capital market instrument. It is an investment vehicle that allows companies, banks and governments to fill large but short-term capital needs at low cost. Treasury bills are long-term bonds issued by the government with a maturity of more than 10 years. A financial bond is called T-Bonds. A bond pays a specific interest rate on the principal amount to the holders.
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Finance bills are divided into 3 bills according to maturity, ie a) 91 days b) 182 days c) 364 days. Treasury bonds are sold at a discounted price, and they do not pay interest. Treasury Bills are also known as T Bills. A Treasury bill is simply a written instrument found in the capital and money market. Typically, in T-Bills, the difference between the issue price and the face value is treated as interest income.
What Are Treasury Bills (t Bills) And How Do They Work?
Suppose there is a bond of price 1000 INR, and the government sells it for 800 INR so at maturity the T-Bill holders will receive 1000 INR and this is called selling less than the face value and getting the real value or nominal at the maturity date.
The bond is sold at face value and has a fixed interest rate that is paid once every six months. Some of the major bonds are municipal bonds, government bonds, corporate bonds, Zero Coupon bonds, etc. Bonds are also known as fixed income instruments.
Let’s say that Smith bought government bonds from the government worth INR 10,000 and the term of the bond is 10 years, with an interest rate of 4.75%. So every six months Smith will receive an interest payment of INR 237.50 from the government for 10 years and at the end of 10 years Smith will be reimbursed with the initial deposit of INR 10,000.
It is not issued at a discounted rate, but pays interest every six months and pays the face value at maturity.
What Is A Treasury Bill? T Bills Defined
From the description, above, it is clear that Treasury bills are short-term money market instruments with a maturity period of one year or less and Treasury Bonds are long-term capital market instruments with maturity more than 10 years or more and a maximum of 30. years. Both treasury bills and bonds are less risky compared to other investments as they are insured by the government. T-Bills are issued at a discount, and mature at face value while T-Bonds pay interest every six months and mature at the face value of the bonds. Both instruments are issued by the government to raise funds for government operations. Investors can consider investing in Treasury Bonds if they want a good and low-risk way to earn some interest. Some investors believe that Treasury Bonds are not good things to invest because the interest rate is more than 10 years and that is a long time. T-Bills are highly liquid instruments and are low risk instruments. Both T-bills versus bonds can be sold before maturity through the secondary market.
This was a guide to the biggest difference between Treasury Bills vs Bonds. Here we also discuss the key differences of Treasury Bills vs Bonds with infographics and comparison chart. You can also consult the following articles to know more.
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