Do you know you can improve your monthly savings and also make good future financial status by investing in nigeria bonds system FGN Bonds.
Have you ever think about this- Ever since the capital market crumbled, few Nigerians with reliable information on investment have continued to rake in profit from this same market and are not ready to stop anytime soon. “Who no want make money?”
What differentiates you from these few individuals is information, no wonder they say “information is power” and you can’t beat that.
With the launch of the Federal Government Savings Bond earlier, I thought I should shed some light on the benefits of this investment vehicle.
So, I will be sharing with you how to save N5,000 monthly.
what makes this Savings Bond so great? Well, for one, it’s a guaranteed bond meaning that the Government guarantees to repay you in full at the agreed date.
I’ll be weighing their merits and demerits, benchmarking them against indices like inflation and also comparing them relative to each other so at the end of this series of posts, you’ll understand the ideal savings plan based on your personal circumstances.
If you are reading this on a smartphone right now with data you bought by yourself, then you have no excuse not to be able to save at least N5,000 every month. Also, if you’ve been finding it difficult to save regularly, well, this one’s for you.
without much i do let dive in
FEDERAL GOVERNMENT OF NIGERIA BONDS – FGN BONDS
let’s start with the FGN Savings Bond. Retail Savings Bonds have been around for close to 100 years in countries like the United States for example but Nigeria is just catching on. That’s really because, up till now, our government hasn’t really needed to borrow as much as they have been doing recently.
what is bond? A bond is simply a type of loan taken out by companies. Investors lend a company money when they buy its bonds. In exchange, the company pays an interest “coupon” (the annual interest rate paid on a bond, expressed as a percentage of face value) at predetermined intervals (usually annually or semiannually) and returns the principal on the maturity date, ending the loan.
Unlike stocks, bonds can vary significantly based on the terms of the bond’s indenture, a legal document outlining the characteristics of the bond. Because each bond issue is different, it is important to understand the precise terms before investing. In particular, there are six important features to look for when considering a bond.
now let discuss bonds in Nigeria system.
FGN Bonds are debt securities (liabilities) of the Federal Government of Nigeria (FGN) issued by the Debt Management Office (DMO) for and on behalf of the Federal Government. The FGN has an obligation to pay the bondholder the principal and agreed interest as and when due. When you buy FGN Bonds, you are lending to the FGN for a specified period of time. The FGN Bonds are considered as the safest of all investments in domestic debt market because it is backed by the ‘full faith and credit’ of the Federal Government, and as such it is classified as a risk free debt instrument. They have no default risk, meaning that it is absolutely certain your interest and principal will be paid as and when due. The interest income earned from the securities are tax exempt.
Therefore, the Federal Government is giving every Nigeria an opportunity to lend a minimum of N5,000 and this will be paid back after 2 or 3 years depending on the issuance. Remember I said that there will be a coupon paid quarterly, well this is presently set at 13.01%.
So what makes this Savings Bond so great? Well, for one, it’s a guaranteed bond meaning that the Government guarantees to repay you in full at the agreed date. Your next question might be, “Should I buy the Savings Bond?” Well, there are a lot of reasons why you should. The Federal Government guarantee means that it is as risk free as an investment gets and the government plans to issue these bonds on a monthly basis so you can continue to buy the bond month on month with the knowledge that your money is safe. Furthermore, you are unlikely to find any legitimate fixed income security that can pay anything close to 13% for a N5,000 savings and still pay a quarterly coupon.
Thirdly, and this is very unique. The bond is trade-able on the stock exchange which means that if you want your money back before the maturity of the bond, you can simply sell it. You will likely have to trade the bond for less than its face value but at least the window is there for you if you need it.
The downside of this vehicle for savings however is that if you have a savings target of say N50,000, and you save N5,000 monthly, you won’t get your N50,000 cash back at once. Remember that each bond has a maturity date 2 or 3 years in the future so if you save N5,000 every month for 10 months, only the bond purchased in the first month would have matured at the end of 10 months. You will have to wait till the maturity date of the last bond before you can get all your N50,000 back unless of course you sell on the stock market.
Lastly, even though the coupon is guaranteed, the rate is still lower than the current inflation rate which is 17.78% today. So assuming that you buy the bond today and the inflation rate remains unchanged until maturity in 2 or 3 years from now, your investment will be worth 4.7% less.
So to summarize, as a regular savings vehicle, the FGN bond offers a guarantee, an unbeatable interest rate for the amount you are investing, paid quarterly but the unbeatable interest rate doesn’t beat inflation.
I wish best of luck on your investment
Comment below if you have any questions
And don’t forget to educate the masses by sharing.