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Financial Literacy

Investing in Nigeria’s FGN Bonds Explained

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CBN Gov Godiwn Emefiele

This articles explains what an FGN Bond is and how you can invest in one.

What is a Bond?

A bond is a contract between a lender and a borrower, whereby the borrower agrees to pay the lender interest and repay principal at stipulated periods. It’s similar to an IOU, issued by the Government or a Corporate institution as a way of raising funds for particular projects.

What is an FGN Bond?

FGN Bonds are Debt instruments or contracts issued by the Federal Government of Nigeria for an agreed period of time. The investor lends an amount of money to the government and earns interest on the investment until the maturity of the bond when the initial payments will be returned.

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What are the Benefits of an FGN Bond?

1. Tax free Income: interest received on FGN Bonds is not subject to withholding tax, company income tax, etc.

2. High and stable returns

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3. Free from default risk: repayment is guaranteed at the maturity of the FGN Bond

4. Collateral for borrowing: the FGN Bond can be used as collateral to raise financing.

5. Easily Tradable as it has a unique quality of being quoted on the Nigerian Stock Exchange and can also be traded over the counter (OTC)

Who Can Invest in FGN Bonds?

Anyone can invest in a FGN bond. They can be individuals or corporate bodies.

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When does the Government Issue Bonds?

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The Government via the Debt Management Office DMO will first issue a primary auction. Freshly issued bonds usually takes place on the third Wednesday of every month.

Where Can I Buy an FGN?

You can buy from the following PMI’s. Just go to any of their branches and request for a form and guidance

Access Bank Plc.

Corronation Merchant Bank.

CitiBank Nigeria Ltd.

Consolidated Discounts Ltd.

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Ecobank Nigeria Plc.

Fidelity Bank Plc.

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First Bank of Nigeria Plc.

First City Monument Bank Plc.

FSDH Merchant Bank Ltd.

Guaranty Trust Bank Plc.

FBN Merchant Bank Ltd

Stanbic IBTC Bank Plc.

Standard Chartered Bank Nigeria Ltd.

Union Bank of Nigeria Plc.

United Bank for Africa Plc.

Zenith Bank Plc.

What are the Bond Maturity Terms?

FGN Bonds have maturity years ranging from 5 years to 10 years to 20 years. The maturity of a bond is the number of years remaining for an already issued bond to mature (due for payment of principal)

How do I invest in FGN Bonds?

You can invest in bonds through a Primary Dealer/market maker (PD/MMs). PD/MMs can be banks, investment houses, brokers etc. . To invest you approach your chosen PD/MMs and fill a form. In the form you fill your Personal Information, bank details for payment of your interest, CSCS nos, the amount you wish to invest, your bid interest rate and then sign. You can invest a minimum of N10,000 and multiples of N1,000 thereafter.

Why do I have to bid interest?

FGN Bonds are sold via an auction system where investors quote interest rates for bonds they wish to buy. As such, bond applications with interest rates that are below the minimum average interest rates otherwise called the marginal rate quoted are accepted and those higher may be rejected. For example, if the average minimum interest rate is 12% then bids below 12% will be accepted. Therefore different investors can have different interest rates provided it falls below the minimum average bid price. Someone can have 10% another 11%, 9%, 10.5% etc.

What is the Marginal Rate for Bonds and How does it work?

Bonds like any other asset is affected by the interest rate pressures. As such despite the coupon rates the FG indicates it will pay bond purchasers and sellers determine the price of a bond based its expected yield. For example, FG Offer for sale FGN Bond with a coupon rate of 10%. As such N100 unit (bond price) of the bond will earn N10 in coupon interest. However, when you are about to buy the marginal rate determines the price you pay. So, if the marginal rate is 13%, you pay N76.9 for a bond with a Face Value of N100 per unit.

This is derived at by dividing the fixed coupon N10 by the expected yield 13% (10/0.13) to arrive at N76.9. As such the N10 coupon that will produce a yield of 13% will be based on a price of N76.9. So basically when the yield is higher than the coupon the bond price is sold at a discount and when the premium is higher than the yield the bond price is sold at a premium.

What if I lose my bid is there still a way I can buy?

You can buy or sell bonds at the secondary market. So for those who do not wish to hold to maturity they can just go to the Over The Counter (OTC) market on the floor of the Nigerian Stock Exchange and buy. The secondary market is open from 10am to 2pm Monday to Friday. The minimum investments are 50 million and 100 million per transaction.

How Quickly Can I convert Bonds to Cash?

If you do not wish to hold to maturity, you can convert bonds to cash to selling on the secondary market through your PD/MMS who are mandated to give a two-way bid/offer price. Because bonds are typically stated in of 50million and 100million amounts below are generally illiquid in the secondary market and are sold on a best effort basis.

When is the interest paid?

The coupon Interest on FGN Bonds are paid semi annually.

Where will my Interest Payment be paid to?

Your interest payment will be credited to the account that you indicated when you filled the form.

Can my interest payments be rolled over on top of the principal?

No. The coupon is not rolled over automatically. It is credited to your accounts as cash. However, you can then use the interest to purchase the next round of bond sales should you want to enjoy the benefits of compounding interest.

Are the Interests Tax Free?

Yes it is Tax free as you do not pay tax on the interest

What Security do I have?

FGN Bonds are secured by the full faith and credit of the Federal Government of Nigeria. Their default capability is close to zero

What affects the Bond Price?

The Bond price is affected by the yield. The higher the yield the lower the price. For example a Bond Price originally cost N100 at 10% coupon rate (N10 interest). The price drops to N90 due to forces of demand and supply. The yield is therefore the N10 divided by the N90 0r 11.1% price in the hand of a new purchaser.

What other Factors affect Bond Price?

a. The credit status of the issuer
b. The forces of demand & supply of such securities
c. The inflation and interest rate movements
d. Activities and performances of the equities market.

Note: Information from DMO and Zenith Bank website was used in writing this article

This article originally appeared on Nairametrics on the 8th of September 2013. It has now been updated

 

Nairametrics is Nigeria's top business news and financial analysis website. We focus on providing resources that help small businesses and retail investors make better investing decisions. Nairametrics is updated daily by a team of professionals. Post updated as "Nairametrics" are published by our Editorial Board.

5 Comments

5 Comments

  1. Anonymous

    April 20, 2017 at 5:47 pm

    It good but it could be better if it could be systematic because from what as be said one need to be going to the bank as often as possible

    • Adetunji Ilupeju

      October 16, 2017 at 10:02 pm

      Luxury tax: it will work and help us to reduce some level of unnecessary taste for luxury items in a country of very many poor people. The big business owners do not go much for luxury items like government business persons and top civil servants or administrators. Their taste for luxury is fuelled by easy money not by hard earned income. Even if what accrue to government is “miniscule”, it may help the society to lower craze for acquisition of wealth way beyond our need (that is being stored in houses not in commercial ventures). A person that do not need more than 4 plots of land will not acquire 12 plots if he/she will be taxed for ownership of such a number of plots extra. Acquiring 8 un-necessary/unused plots denies the society and makes land acquisition more difficult for others.

  2. Anonymous

    August 23, 2018 at 4:38 am

    Okay say hypothetically, I want to invest a million naira in government bonds, for a 3 year period, what would be my interest rates and when would you advice me to invest?

  3. SHEWU

    May 22, 2019 at 10:51 pm

    Please,how can I invest in government Bond, give me details

  4. anonymous

    July 17, 2019 at 1:09 pm

    i really do not understand all these grammar can you in a lay man’s language explain the all and rudiments of this bond investment to me? this is because my dad wants to invest and he needs me to explain in details to him before he ventures.

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MSME

432,000 business applied for FG payroll support, 70,000 shortlisted 

70,000 Nigerian businesses have been shortlisted for the Payroll Support of FG’s Survival Fund Grant Scheme.

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Companies Allied Matters Act (CAMA)

70,000 businesses in Nigeria have been shortlisted from the 432,000 businesses that applied for the Payroll Support of the Federal Government’s Survival Fund Grant Scheme. Many states did not meet their quota and plans are ongoing to seek an extension after the portal closed 5 days ago.

Mr. Tola Johnson, the Project Coordinator of PDO and Special Assistant to the President on Micro, Small and Medium Enterprises (MSMEs), confirmed this to the DailyTrust.

READ: CBN disburses N50 billion loans through MFBs’ IT platform

Back story

Nairametrics had earlier reported plans by the FGN to roll out a N2.3 trillion stimulus package and survival fund for Micro, Small, and Medium Enterprises (MSMEs) to stay afloat amid the economic challenges imposed by the pandemic.

The survival fund includes payroll support for three months and a guaranteed off-take scheme among others, all under the National Economic Sustainability Plan (NESP).

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READ: PenCom should pay 50% of workers’ pension at retirement – TUC

What they are saying

Commenting on the latest development, Mr. Johnson said, “As at the day the portal closed to applicants for Payroll Support Scheme, we had 432,000 businesses that applied. However, we have shortlisted 70,000 that met the requirements. These businesses have uploaded over 400,000 staff for us to pay for three months.’’

Mr. Johnson pleaded for an extension, noting that though the portal closed on the 15th of October, 2020, many states did not meet their quota

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READ: CBN reserves 60% of N220 billion MSMEs fund for women

“The Project Delivery Office, which I head, is taking this plea for an extension to the Steering Committee headed by the Minister of State for Industry, Trade and Investment, Ambassador Mariam Katagum.

“To know whether to extend the date for online application into the payroll support scheme will be based on the data available to us.’’

He concluded by emphasizing the need for BVN and digitalizing the process, noting that business owners will not be paid directly. Only their staff will be paid subject to the provision of BVN.

READ: CBN reserves 60% of N220 billion MSMEs fund for women

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Why it matters

The support is a kind gesture by the FG, aimed at alleviating the impact of the pandemic on MSMEs. It is a way of averting massive job loss, creating income for the staff, and stimulating the economy, as the impact of MSMEs in developing the economy can not be overemphasized.

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Investment Tips

Where to invest $10,000 right now

Entrepreneurs, financial experts and investment analysts suggest what sectors or assets to invest in if you have $10,000.

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Where to invest $10,000 right now

The upsurge in COVID-19 cases around the world has kept global investors flocking the world’s safe-haven currency at an exponential rate, the high demand for the greenback is coming on the high geopolitical uncertainty prevailing in today’s financial market.

Also, it’s important to note at the currency market, the U.S dollar remains king. According to the International Standards Organization, 90% of currency trading done globally involves the U.S. dollar, most crypto assets, virtually the most liquid commodities are priced in the U.S dollar not forgetting about 40% of the world’s debt is dominated in the greenback.

READ: If you have N1m today, how would you invest it?

READ: Hackers, expose crypto wallets worth $150 million at Kucoin

So Nairametrics felt it paramount to ask a hedge fund manager,  entrepreneurs, and financial experts, about what sectors or assets they would invest in if they had, say, $10,000.

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Their responses were revealing and diverse as they were varied—ranging from; buying global equities, local stocks, real estate holdings to investing in digital assets.

READ: Key ‘side-hustles’ Nigerian Bankers supplement their income with

READ: What BBNaija winner, Laycon can do with N30 million  

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Gavin Smith, veteran trader, and managing partner at Panxora Crypto Hedge Funds.

I would scale into BTC $2,000 now, $2,000 when it comes off to $10,000, then add $2,000 at $9,000 and another $2,000 at the $8,000 level. If BTC then breaks above $13,000 I would buy any of the above orders that had not been filled of the remaining $2,000. I would put $500 into each of these four DeFi protocols: LINK, COMP, KNC, and OMG.”

READ: Real Estate Developers express fear over selection process of CBN’s N200 billion Housing Fund

DeFi is an exceptionally volatile market and these would need active management, but they represent an opportunity with exceptional upside potential. This is a market our analysts are building a profile in, to advance our DeFi hedge fund later in the year.

READ: Real Estate: A universal convertible survival tool

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Debo Adejana – Founder, MD/CEO – Realty Point Limited.

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I follow the investment wisdom that says, ‘invest in what you know and understand’. I know and understand real estate probably more than any other investment asset class.

So, the decision as per what I will invest in with $10,000 which should be upwards of N4m is simply; Real Estate. I will either do rental income property as part of a properly organized shared-ownership structure or speculate on land depending on how much time I have with the money. The reasons are very basic, real estate investments have been known to survive and surpass any and every challenge.”

READ: If you had $100,000 in cash, where would you invest it in US markets?

Darlington-Morsi Onyemaka, Co-founder Quba Exchange Forbes Accelerator Cohort ’20.

One of the main pointers to a good investment portfolio is diversified across multiple asset classes which should be according to the investor’s risk appetite. Looking at my long-term investment strategy, real estate fits in perfectly for Ten-thousand dollar investment. My portfolio is already jam-packed with high-risk assets and Real Estate will do a great job at hedging the risk factors without minimizing profitability in any significant way.”

READ: Foreign investment inflow into banking sector falls by 95% in Q2 2020

Francis Obasi Cofounder and CEO of Lead Wallet.

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If I have a spare $10,000 right now for investment, first, I’ll invest 55% of the funds into new crypto startups being run by professionals and backed by companies like Coinlist; LID Protocol, and Binance. Second, I’ll invest 20% of the funds into Lead Token as there is still potential for massive growth in the coming months/years. Third, looking at the situation of Nigeria, and not knowing where the current protest (uprising) on #EndSARS is headed, I’ll reserve the rest 25% in USDC/USDT to hold against a potential Naira crash. I’m confident that there is every possibility that the Dollar will become scarce again in the coming weeks/months due to the ongoing protest, thereby returning instant gains for immediate spending on basic needs.”

READ: Ethereum robber transfers $1.5 million worth of Crypto

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Dapo-Thomas Opeoluwa Global Markets analyst and an Energy Trader.

“There are so many ways to invest $10,000. The real question depends on the investor. His risk appetite, his investment horizon, when does he or she want to liquidate? The answers to these now limit the options of investments. So for safe and long-term investments, I always advise investing in index funds, Eurobonds or the Nigeria International Debt fund. This is with the caveat that says ‘low risk equals low returns’. Also, I usually would say, invest in investments that beat inflation so you won’t suffer negative real turns.”

READ: Total, GTBank, Zenith Bank up, Bulls return to Nigerian Stock Market

Victoria Njimanze Investment Analyst at a Nigerian Investment Bank

Well, off my head I’ll go with Bonds, cryptocurrency, Stocks, and then alternatives.  I would definitely make my findings first, but I’ll make a larger portion go into Bonds say 40%, 30% in cryptocurrency, 20% in stocks, and 10% in alternatives like commodity market so as to have a diversified portfolio.”

READ: Cryptos: Nigerian financial experts talk risks associated with trading digital assets

READ: A mysterious Bitcoin Whale causes brief panic sell-offs at Bitcoin’s Market

Akinsola Esan, a credit risk analyst at Nigeria’s Tier 1 Bank.

Basically, the goal is to earn substantial returns on investments – dividends, capital appreciation, and secondly, beat inflation in naira which is currently about 12.85%. With $10,000, I’ll spread my investments across foreign equities such as purchasing and holding stocks of companies like Apple, Facebook, Google, Fastly, Nio, Amazon, to list but a few, and also buy some top-performing dollar-denominated Mutual funds such as Vantage dollar funds and some other ones recommended by Nairametrics. Lastly, I will look in the area of cryptocurrencies by investing as much in bitcoin, Ethereum, and other recognized Cryptos. There are some dividend-paying stocks listed on the Nigerian stock exchange as well, I will consider holding a number of them.

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Bottom line

Due to the present fickle nature of global financial markets, most financial experts interviewed above are unsurprisingly keen on mostly U.S dollar-dominated financial assets, thus reflecting the greenback’s dominance in demand amid the COVID-19  infection exploding at an alarming rate.

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Personal Finance

The five hidden secrets for investing success

These are the five main differences between making money, saving money, and investing money.

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How young Nigerians invest

One of the popular questions I get asked all the time is this; how do I invest for financial success or how do I make wise investment decisions. Today I will show you how to invest for long-term financial success. There is the right way to invest and there is also a wrong way to invest. The right way leads to financial success and the wrong way leads to financial failure. This means that the same investment vehicle can make you rich and it can also make you poor. I know this because there is virtually no person that I know today who has not lost money in investing before.

READ: Here is how much you should save at every age

To achieve financial success you must know how to invest without losing money and you must also master the three abilities necessary for investing success. The first ability is the ability to make more money and earn high incomes. The second ability is the ability to save big portions. And the third ability is the ability to invest your savings without losing it. These are the three secret formula for investing success. Unfortunately, only a few people know this formula or even thrive in all three areas. Many people are good at making money. They make a lot of money and save little or nothing. Some are good with savings. They save a lot of money but then lose it all through investing. And others are good at investing. They invest well but have little savings to make any significant progress. If you want to achieve financial success, you must thrive in all three areas. You must also know the key differences between them. There are five main differences between making money, saving money, and investing money. And these five are the hidden secrets for investing success. Let look at each of these five components in detail.

READ: Where to invest $10,000 right now

Secret No 1. Money making, saving money and investing money are different

Making money is a money-producing activity. Saving money is a money preservation activity. And Investing money is a money growing activity. To make money you need to solve a problem for other people and earn money for the problem you solve. To save money you need the discipline to live below your means and the self-love to pay yourself first. And to invest money you need some money and the right investment vehicle. Making money thus requires problem-solving skills, saving money requires the right attitude, and investing money requires money. So why you can make money from scratch with your skills. You cannot save from scratch or invest from scratch. To invest you need to save. To save you need money, and to get the money you need money-making skills.
Secret No 2. Investing Cannot Make you Rich

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READ: Investing & Gambling: Differences and Where They Intersect

Investing does not have the power to make you rich neither does your savings. The only way to be rich is to solve the problem of many people. The richest people in the world are all problem solvers. They solve problems by creating products and services that meet a need. And their wealth is the reward for the problem they solve. There is no single person in the world today who made their money solely through investing or saving. The fastest way to create wealth is to solve problems for many people.

READ: Financial skills everyone should master (1)

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Secret No 3. Investing is a poor money maker but a rich wealth creator

Investing and investment vehicles are poor money-makers but rich wealth creators. While they can make you wealthy and increase your Net-worth they are poor income producers. Many people in the bid to make up for their lack of money-making ability try to force the responsibility of making money on their investments. They become aggressive, take unsafe risks, and put pressure on their investment to produce high returns. They are lured by “get rich quick schemes” and make erratic investment decisions. They do this in the hope that their investments will produce the income they need to be rich. But this is a recipe for failure. The purpose of investing is to grow your savings and produce passive income and not to make you Rich. Your job is to refine your skills, build rich relationships, learn about sales and marketing so you can make multiple streams of income. As you produce more income and invest more money your passive income begins to build up to the point where it can carry the weight of your bills. This is the point where you can begin to relax a bit. Until then, keep refining your ability to earn multiple streams of income.

READ: Big mistake: Ripple’s CTO sold his Bitcoin for $750

Secret No 4. Investing can do five things for you

Investment vehicles have five capabilities and can do five things for you. The first capability is protection. Certain Investment vehicles can protect you from risks and emergencies. The second capability is passive income. Certain investment vehicles can produce passive income for you. The third capability is principal appreciation. Certain investment vehicles can grow your invested capital. The fourth capability is gambling. You can gamble with certain investments and lose all your money. And the fifth is sales income. You can get back your money with interests when you sell a profitable investment.

Secret No 5. Investing is easier than making money and saving money

Investing is easier than making more money and saving money. When you want to invest all you need is a clear understanding of where you are going, how to be safe on your way, and how to get there. It is like a car, you don’t need to know all the component parts in your car bonnet. But you need to know the fundamentals of driving a car, how to be safe inside a car, what to do to get to your desired destination, and who to call when your car has a problem. With this critical information, you can successfully drive a car. Similarly, you can invest successfully by just knowing the fundamentals of investing and collaborating with advisors and investment experts who know the tiny little details about investing. Only a few wealthy people in the world are investment gurus. They simply know the basics and surround themselves with experts that can help them. This is what you must-do if you want to achieve investing success. But when it comes to making more money and saving money the story is different. While you can learn how to make money and save money from other people. No one will make money or save money for you, you have to do this by yourself. Also, nobody’s skill or expertise will work for you. You have to develop your own skills and expertise to make more money and save more money. This makes making more money and saving money more difficult than investing. Nevertheless for you to be successful you must focus your energy and attention on making more money and saving money. You can always get help with investing and succeed in investing without being an investment guru.

READ: 10 ways to save and make more investments

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Investing for financial success is the dream of most people. However, there is the right way and the wrong way to invest.  The key to success with investing is to recognize the difference and understand the five secrets we have discussed in this article. The truth is your salary will never be enough to achieve all your goals. Your Investments will also not make you rich. You need to increase your ability to earn more income and save a major part of that income to thrive.

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If you want to learn more about how to invest with total financial confidence or how to make more money and save more money we can help you. To learn more send an email to [email protected]

Great investing success is not about the amount of time you put in it but the knowledge and principles that govern your investing.

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About author

Grace Agada is The Senior Financial Happiness Director @ Create Solid Wealth. She is an Author,and Column Contributor in Six National Newspaper. She is a contributor at BellaNaija, Nairametrics and Proshare and she is on a mission to help working-class professionals and CEOs become more financially successful. To learn more about Grace and how she can help you send an email [email protected]

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