For a considerable period, my desire to invest in Government treasury bills and bonds remained dormant. As a self-proclaimed layman, the imposing structure of the Central Bank of Kenya (CBK) only heightened my apprehension.
However, my reluctance eventually gave way to curiosity and, in 2014, I decided to delve into the world of Government securities, conducting thorough research to join the ranks of individuals investing directly with the CBK.
Before delving further, it’s essential to understand what Treasury Bills and Bonds entail. These financial instruments serve as tools for the Government, facilitated by the Central Bank of Kenya, to raise funds. Essentially, it involves the Government borrowing money from the public to address budgetary deficits or support capital projects.
Distinguishing between Treasury Bills (T-Bills) and Bonds (T-Bonds), the primary disparity lies in their tenor, with Bonds having a longer-term (exceeding 1 year) compared to the short-term nature of Bills (1 year and below). The minimum investment amounts also differ, with T-Bills requiring Kshs. 100,000 and T-Bonds allowing a minimum investment of Kshs. 50,000, except for infrastructure bonds, where the minimum investment is Kshs. 100,000.
These financial instruments generally offer security as they involve lending to the Government.
Initiating the investment process involved obtaining a mandate card from the CBK, filling it, and submitting it to my local bank branch, which, in turn, certified my passport photo and signed the necessary provisions. This step confirmed my bank account with the CBK. After submitting the required documents to the CBK, a waiting period ensued, during which due diligence was conducted, leading to internal approvals.
Upon completion of the waiting period, I received an email from the National Debt Office, addressing me as an “investor” and providing details of my new CDS number and a Virtual Account number, along with instructions on their usage.
To invest in Treasury Bills and Bonds as an individual, further research was necessary. The CBK conducts weekly auctions for T-Bills and monthly sales for T-Bonds. Bidding involves downloading forms from the CBK website, filling them out, and submitting within specified timelines. While physical submission was previously required, electronic submission is now an option.
The auction results are typically announced the day after submission deadlines. To ensure a successful bid, it is crucial to stay informed about the sale dates, available in daily newspapers and on the CBK website.
In my case, as a novice, I initially invested Kshs. 50,000 in T-Bonds, the minimum investment amount. After filling out the bid form, I submitted it physically to the CBK. Confirming the bid’s success involved contacting the National Debt Office, which provided necessary details for transferring the invested amount to my bank the following week.
The return on investment varies between T-Bills and Bonds. T-Bills factor in the discount rate upfront, with the face value received upon maturity. In contrast, T-Bonds provide periodic interest payments, usually semi-annually, and both principal and interest amounts are directly deposited into the bank account.
For those interested but intimidated by the individual investment process, investing through a Bond Investment fund managed by professionals is a viable alternative. Benefits include expertise in obtaining competitive interest rates, trading in the bond secondary market, and flexibility in holding or selling bonds before maturity. The ICEA Lion Bond Fund is recommended for its customer care and responsiveness.
In conclusion, I plan to explore the technical aspects of investing in Government securities, tax considerations, and share why infrastructure bonds are my preferred choice in future discussions. If you have experience investing in Treasury Bills or Bonds, I welcome you to share your insights.