Treasury Bonds and Bills: What they do and how to make money from them.
We have gone through what stocks are and how they can benefit you. If you haven't yet, click here to read through what stocks are. In this article, we are going to talk about how government securities work and how you can invest your money into them. They are two types of securities: a Bond and a T-Bill.
“With bonds, investors receive interest payments every six months throughout that period of time, and at the end of that period they receive the face value amount that they invested.”
A Treasury Bond (Government Bond)
A Treasury Bond, frequently referred to as a Government Bond, is money that a person can loan the government for a long period of time, usually 5 to 30 years. The government uses this money to perform various tasks that it deems fit. I personally think this cash goes into ejecting failing companies out of financial crisis so as to improve the economic situation in the country.
One has to wait for the maturity date so as to get all the money back. The term maturity date refers to the time the money is going to be in the governments hands. Same as every other loan, the money starts to gain interest over a period of time. This is your return on investment and is given to you after every 6 months since the investment period began. Quite a good way of making a steady income...
When the maturity date arrives, you are given back the original amount of money you had invested at the start, referred to as the face value. You still get the same amount you had put in at the start, at no loss at all. No risk at all. The minimum amount required to invest in bonds is Ksh. 50,000.
A Treasury Bill
A Treasury Bill, often spoken of as a T-Bill, is money one can also loan the government, but for a short period of time. They are divided into 3 periods in a year i.e
91-day: You get the face value after 3 months.
182-day: You get the face value after 6 months.
365-day: You get the face value after 1 year.
“You make the money from bidding, by hoping your bid is accepted by the government.”
With T-Bills, they are discounted. You can bid to loan the government a lesser value of the face value to the T-Bill you want to subscribe to. This means that if the T-Bill is valued at a certain price, you can bid to pay 80% of the original value and get back the face value at the end of the maturity period. The minimum required amount for investing in T-Bills is Ksh. 100,000.
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