The FGN savings bond was introduced into the market on March 7, 2017 as a result of market restructuring that saw the upward review of the minimum subscription for treasury bills and bonds in the primary market from N10,000 to N50m. This means that investors or group of investors that cannot come up with the minimum subscription of N50m will have to buy from the secondary market, or subscribe to the FGN savings bonds that have much lower minimum subscription requirements of N5,000 minimum.
Before I proceed further, I want to make further clarifications regarding some terms based on questions and feedback I have received so far. The primary market is where you buy directly from the issuer. It is like buying drinks directly from the manufacturer (wholesale). You do that by going through your bank, stock broker or discount house. The secondary market is where you buy from someone who bought from the primary market and wants to re-sell (retail). It is like going to a supermarket to buy drinks – you are buying from someone who bought from the manufacturer.
Brokers usually deal with both primary market and secondary market transactions. That means you do not have to look for another broker when you want to trade in the secondary market, unless you have reasons to. For example, the broker also has a minimum amount they sell to the public based on who their target clients are. It is possible that the minimum amount the broker is ready to accept is too high for you. In that case, you need to look for another broker that will accept the amount you have. If you still cannot find one, then you may have to save up until your money is enough. There are investment products you can use to save monthly until you arrive at the amount you want.
Investing in FGN savings bond
Investing in FGN savings bond is as simple as visiting one of the stock broking firms accredited by the Debt Management Office and fill out the required forms. The DMO is responsible for issuing bonds on behalf of the Federal Government. You can download the current list by visiting the DMO website, www.dmo.gov.ng. You will be required by the stockbroker to open an account with them so that you can deal through them (if you do not have a stockbroker who is already is accredited). Whether you end up opening the account or not, you will be better informed than someone sitting at home asking questions but doing nothing. Taking that first step seems to be the biggest challenge people have.
Investing in fixed income securities is virtually risk-free, so there is no point analysing endlessly an investment that carries no risk. It does not make sense. What should concern you is how to enter, how to exit and how investing in bonds fits into your financial goals and plan. You must have a reason for wanting to invest in bonds. Once you are clear, just step forward and take action. Any additional questions you may have will be answered by the broker.
FGN savings bond is issued by the DMO on behalf of the Federal Government of Nigeria, targeted at low-income earners to encourage savings and to earn income (interest) at competitive rates. The interest earned on FGN savings bond is tax free. This means you can grow your money faster.
Interest earned from FGN savings bond is paid quarterly – every three months – into your account as indicated in the submitted subscription form. The interest is calculated per annum (year). This means if you invest N100,000 in FGN savings bond at 13 per cent, you will be paid N13,000 per year. That means every three months, you will get a credit alert of N3,250, which adds up to N13,000 per year. If you think the interest is too small, you need to increase your investment. That may require you to start saving more and consistently rather than spend on things that will not improve your future. If you are focused, you can keep growing your money to the point that your interest is enough to feed your family.
Minimum subscription for FGN savings bond is N5,000 with a maximum of N50m. Some brokers may not accept N5,000 as stated earlier. You will be told the minimum they accept. If you do not have enough money, you can check with another broker. You can simply call them to find out rather than go door to door. Also, it is better to save up your money to a reasonable amount before you invest in bonds because if the interest is too small, you will be discouraged.
The tenor of FGN savings bond is two to three years. The interest rate is determined by the issuer and is usually stated in the offer for subscription adverts. Offer for subscription is open to the public and it takes place every month, and usually lasts for a week. During that time, you can visit your stockbroker to fill out your subscription form and fund your account. After close of subscription, you will be notified if your subscription was successful. You can decide to take part in every subscription or add your money together and subscribe once in a while. It is important you have a goal you are working towards so that you invest with a plan and focus.
If you want your money to grow faster, you can add your interest to your savings account and use it to buy another bond later, rather than spending the money. If you grow your interest big enough, it becomes another source of income you can fall back on in future, in the event you lose your job or your pension income is not enough to support you.