A fortnight ago I published the first part of this series investing in Treasury bills and I got several responses. I would like to first use this opportunity of a second look at this investment vehicle to clear up certain issues raised by readers below:
The first issue concerns what interest to be paid to investors in Treasury bills. Interest payments are calculated on a per annum basis, not on a per investment basis.
This means if you invest N100,000 for 91 days at 10 percent per annum you will receive interest amounting to 10 percent of the invested sum multiplied by 91 divided by 365 days. In actual fact, you will be receiving around 25 percent on N10,000 as interest. This increases to 50 percent when you invest for a 182 days, and a 100 percent if you invest for 364 days. Thus the best interest is received when you invest for a whole year. This was not properly explained previously.
Secondly, since the interest is paid upfront readers were interested in knowing what amounts will investors receive at the maturity of their investment? Going back to our N100,000 example if this is invested for one year at 10 percent interest the bank will take N90,000 from the investors account at commencement; but at maturity they will pay back N100,000.
Many people also did not know how to avail themselves of this opportunity. The right place to go is your local commercial bank. With as little as N100,000 one can invest in treasury bills. This is a product that every commercial bank is licensed to sell/promote, however it seems unpopular and largely unknown to teeming masses of people as the banks don’t seem to be enthusiastically driving it.
Even though banks are the vehicles to plug into this opportunity, treasury bills are not typical products you can walk into the bank any day with an intention to purchase and then walk out with them in your briefcase. First and foremost, they are purchased by placing bids in an auction system that takes place every fortnight. The auctions are normally advertised in the print media by the Central Banks, and investors can then bid and a Dutch auction is done where the best bids are chosen. The commercial banks will for a low fee assist intending investors in all aspects of the process.
It is also important to reiterate again that this investment is highly liquid as the banks provide opportunities for investors to liquidate their investments and convert it into cash at any time at the instance of the investor. This will however be costly when you consider that one will have to refund the interest that was paid in advance thus it is extremely advisable to invest funds that you can afford to do without till it matures.
Many people would also like to know when the best time to invest in treasury bills is. I wish it were possible to look into my investment crystal ball and provide you with this information for a small fee, unfortunately I don’t have it. Changes in economic situations can be lightning quick so you just need to start taking the plunge and make the most of the current situation, especially now that you have funds to invest.
From research the best time to invest in treasury bills is when you have funds that you do not have use for in the immediate future. You can then afford to lock them into an investment. In addition, investment in treasury bills fits perfectly into the diversification of your investment portfolio; you have invested in landed property, stocks, perhaps a thriving business also all with varying rates and periods of returns so you can add treasury bills into the mix.
An investment in treasury bills also makes sense when you are in the cautious, risk free phase of your investment life. Perhaps you are on the rebound after getting your fingers burnt in failing businesses or downwardly appreciating stocks then this is the way to go. If interest rates are good and probably projected to be stable or increase in this season then this is definitely a good time to invest.
Finally, making use of the services of a certified investment adviser cannot be overemphasised as he could provide useful advice on the right time to invest in treasury bills.
Your investment adviser is aware of your investment goals and strategies and as an expert might be privy to useful information that makes an investment now of utmost benefit to you. However, ensure you do your due diligence before you invest in anything.
Treasury bills are clearly one of the investment opportunities under the radar in Nigeria as not much is said about it. Judging by the responses received after the first article I have learned that Nigerians are on the lookout for short term investment opportunities that give them good returns.
I strongly advise all to avail themselves of this opportunity, in addition to the others currently been taken advantage of. A diversified portfolio is the best approach to wealth building.
Kenneth Doghudje
